A protester holds a sign during a demonstration outside of an Apple Store on April 15, 2014 in San Francisco, California. Over a dozen activists staged a demonstration outside of an Apple Store demanding that Apple Inc. pay taxes on money being held in overseas accounts. (Photo: Justin Sullivan/Getty Images)

Tech giant Apple made international headlines and inspired President Donald Trump to brag overnight about his role in making it all possible after announcing it would pay approximately $38 billion in taxes as it repatriates large sums of overseas cash holdings—but that dollar figure is less than half of what tax analysts say the country should be paying for those earnings.\

The repatriation measure included in the "tax scam" law passed by Republicans and signed by Trump last year will result in a multinational corporations receiving an overall estimated tax cut of $413 billion.

According to estimates, Apple has kept more than $252 billion in profits overseas in order to avoid paying U.S. taxes. But with the Trump and GOP lowering the repatriation tax rate from 35% down to 15.5%, the lobbying by powerful and wealthy corporations—including Apple—is finally paying dividends. As Ars Technicanotes, Apple didn't really have a choice about this. "Under the new tax bill," the outlet noted, "all overseas cash is subject to a one-time 15.5 percent tax whether Apple leaves it overseas or moves it to the United States."

But as pointed out by Richard Phillips, senior analyst at the Institute on Taxation and Economic Policy (ITEP), there's even more to these numbers than most are reporting or pointing out:

We estimate that Apple owes about $78.6 billion in taxes on their accumulated offshore earnings (https://t.co/Lnqb4GYXRU), so if they pay $38 billion under the new tax bill (https://t.co/4p1MXgvfTQ), that equals a tax break of about $40.6 billion.

As the analysis Phillips references warns, the repatriation measure included in the "tax scam" law passed by Republicans and signed by Trump last year will result in multinational corporations receiving an overall estimated tax cut of $413 billion.

A Senate investigation found that Apple already has between 75% and 100% of their "offshore earnings" invested in the United States. Really the tax bill just gave Apple a huge tax windfall. https://t.co/DZGAKUifS7https://t.co/USoNCb21WH

"We have a deep sense of responsibility to give back to our country and the people who help make our success possible," declared Timothy D. Cook, Apple's CEO, said in a statement on Wednesday.

But if Apple's sense of responsibility to "give back" is so deep, why avoid paying U.S. taxes on its earnings at the set rate for all these years? Of course many taxpayers around the world feel their rates are too high, but most pay their taxes dutifully nonetheless—many happily and gladly.

Perhaps, as Jason Rhodes wrote for Salon earlier this month, it's because Apple's most significant innovation over recent years is not its mind-blowing and fast-selling tech gadgets but its ability to dodge taxes across the globe. As Rhodes argues, it's very difficult to even imagine what a large number $252 billion actually is. "$252 billion. That's more than the foreign-currency reserves of Britain and Canada. A quarter trillion dollars. Sound that out in your mind, and then say it with your mouth. The phrase "quarter trillion dollars" is 22 letters and six syllables, and I'm afraid it doesn't quite do justice to the amount of capital involved."

And, he notes, "When Trump signed the Tax Cuts and Jobs Act on Dec. 22, 2017, he rewarded Apple for keeping its money overseas, away from starving Americans and veterans with health problems. And Apple was party to all of this. Last year, the Big Five Tech companies increased lobbyist spending by 24.3 percent. By the third quarter of 2017, Apple spent $2.23 million petitioning Congress."

Apple (paraphrase, not real quote): "Please applaud us for doing the right thing, which we should have done in the first place instead of 'innovating' as much in tax dodging as technology." https://t.co/I2mpE0w7DT

As journalist David Dayen warned recently, as he explored how many corporations are enjoying the GOP tax cuts even as they lay off workers or fail to increase wages, "don't let a twisted and dishonest PR scheme by massive companies grateful for Trump's huge Christmas present distort the truth."

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

December 18, 2017

Ah yes, as long as heroin can be produced chemically and not gotten from a poppy in Afghanistan, it is perfectly legal and legitimate and profitable when sold by a duly established corporation like McKesson which makes $100 million a week in profits. The Washington Post and 60 Minutes have called out McKesson for selling pills to criminal syndicates and supplying small town pharmacies with supplies way out of proportion with the actual number of people who inhabit them. The Environmental Protection Agency (EPA) headed by Trump appointee Scott Pruitt had hoped to slap a huge fine on McKesson and put one of its executives in jail for flagrantly violating its responsibility to check on where its opioid pills were going. Instead they just sold them to all comers fueling the opioid epidemic.

The investigators were ready to come down hard on the fifth-largest public corporation in America, according to a joint investigation by The Washington Post and “60 Minutes.”

“This is the best case we’ve ever had against a major distributor in the history of the Drug Enforcement Administration,” said [David] Schiller, who recently retired as assistant special agent in charge of DEA’s Denver field division after a 30-year career with the agency. “ I said, ‘How do we not go after the number one organization?’ ”

But it didn’t work out that way.

Instead, top attorneys at the DEA and the Justice Department struck a deal earlier this year with the corporation and its powerful lawyers, an agreement that was far more lenient than the field division wanted, according to interviews and internal government documents. Although the agents and investigators said they had plenty of evidence and wanted criminal charges, they were unable to convince the U.S. attorney in Denver that they had enough to bring a case.

What do you expect from an agency headed by Scott Pruitt? According to the New York Times:

So what else is new? Why did Schiller even think he could go after McKesson when the EPA was headed by Scott Pruitt who as Oklahoma's attorney general had repeatedly sued the EPA? In fact he sued the EPA 13 times. Obviously, Trump appointees are rabidly pro-business at the expense of the environment so why would the EPA even think it could go after McKesson's profits? Pruitt is a climate change denier; he doesn't believe in global warming. The Trump administration puts profits over everything else. They're against any regulations that protect people or the environment.

Trump appointees are determined to tear down the agencies they have been appointed to lead. There is no more egregious example of this than Scott Pruitt. Schiller thought he could b ring down McKesson, the fifth largest corporation in the US, but his legal team was intimidated by the lawyers at McKesson who had all graduated from Harvard and Yale. The EPA's lawyers who had graduated from places like Tom Dick University and Sonoma State were no match. So justice comes down to who has the best legal team? High power lawyers versus lawyers from Podunk State who were no match and they knew it?

So the EPA settled for a slap on the wrist - a $150 million fine - about a week and a half's profits for McKesson.

Scott Pruitt can live with that. Heroin in pill form can be distributed to as many people who want it by a legitimate and duly licensed corporation instead of by some criminal gang which distributes the real stuff.

December 12, 2017

You hear Republicans say that government regulations are bad. If they were eliminated, business could just produce more, do more, increase sales, hire more workers and the economy would increase. True from their standpoint any regulations which restrict them in any way are bad, but they love regulations that put their competitors out of business. Their lobbyists even lobby for them. Big business uses regulations to put smaller businesses out of business. What be an overburdening amount of paperwork to comply with for a small business is a breeze for a big business. They have a bevy of accountants.

They also have a bevy of lawyers to sue smaller businesses for infringing on their patents. A small business may not be able to afford the legal fees to uphold their side of the case. That's why small businesses need to be protected, but small business cannot afford to lobby. Big business can. In an article, Of Course Big Business Loves Regulation, Tim Worstall says:

The point being that big business doesn't really mind regulation because it has the capability of dealing with it while small business hates it with a passion because it does not.

But it actually goes rather further than this. Big business positively delights in much regulation. To understand this we've got to be clear eyed in our appreciation of what the market is really all about. Capitalism, and big businesses are decidedly capitalist organizations, is indeed all about making profit.

Lobbyists and lawyers will always participate in writing the rules of the road.Their playbook is simple. If they can't get rid of a regulatory agency altogether, they make sure that the rules are so complicated that they can always get around them.Take the Dodd-Frank bill that was supposed to regulate banks, for example. When they couldn't scuttle Dodd-Frank, the layers and lobbyists action simply moved to the regulatory agency itself.

When the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

…”Here’s the key word in the rules: ‘exemption,'” former Senator Ted Kaufman, Democrat of Delaware, told me. “Let me tell you, as soon as you see that, it’s pronounced ‘loophole.’ That’s what it means in English.”

So small business can't afford to assign lawyers and lobbyists to rewrite legislation, to make it more complicated and so that it provides "exemptions" (read loopholes). Government representatives elected by the people are beholden to large corporations for campaign contributions so they want to please them. That's what the Trump tax bill is all about: giving tax breaks to corporations and the wealthy in return for campaign contributions. One hand washes the other.

December 11, 2017

SLAPP stands for “Strategic Lawsuit Against Public Participation.” It is a lawsuit brought by big corporations intended to censor, intimidate, and silence critics by burdening them with the overwhelming costs of a legal defense until they’re forced to abandon their criticism or opposition. And it may be the biggest threat to the resistance you’ve never heard of.

Here’s an example: Resolute Forest Products, one of Canada’s largest logging and paper companies, has sued, in a U.S. court, environmental groups that have been campaigning to save Canada’s boreal forest.

Resolute based its lawsuit on a U.S. conspiracy and racketeering law (RICO) intended to ensnare mobsters. Resolute alleged that the environmental groups have been illegally conspiring to extort the company’s customers and to defraud their own donors.

The suit wasn’t designed to win in court. It was designed to distract and silence critics. This is punishment for speaking out. Thankfully, a federal court agrees and a judge just dismissed Resolute’s claims. But other corporate bullies are still trying to use this playbook.

Here’s another example: Remember the indigenous led movement at Standing Rock, when hundreds of nations and their allies came together and stood up against the destructive Dakota Access Pipeline?

In August, Energy Transfer Partners, the company behind that pipeline, filed a similar RICO case against Greenpeace entities and two other defendants over Standing Rock. The suit accuses them of participating in a sprawling criminal conspiracy to disrupt business and defraud donors. The lawsuit even alleges they support eco-terrorism and engage in drug trafficking.

The lawsuit claims Greenpeace cost the company $300 million. Since RICO claims entitle plaintiffs to recover triple damages, the case potentially could cost Greenpeace $900 million. That would be the end of Greenpeace.

But, again, winning isn’t necessarily the goal of SLAPP suits. Just by filing the suits, Energy Transfer Partners and Resolute are trying to drain environmental groups of time, energy, and resources they need, so they can’t continue to fight to protect the environment.

Connect the dots, and consider the chilling effect SLAPP suits are having on any group seeking to protect public health, worker’s rights, and even our democracy.

Who’s behind all of this? Both the lawsuits I just mentioned were filed by Michael Bowe. He is also a member of Donald Trump’s personal legal team. Bowe has publicly stated that he’s in conversations with other corporations considering filing their own SLAPP lawsuits.

If the goal is to silence public-interest groups, the rest of us must speak out. Wealthy corporations must know they can’t SLAPP the public into silence.

December 09, 2017

Trump and congressional Republicans are engineering the largest corporate tax cut in history in order “to restore our competitive edge,” as Trump says.

Our competitive edge? Who’s us?

Most American corporations – especially big ones that would get most of the planned corporate tax cuts – have no particular allegiance to America. Their only allegiance is to their shareholders.

So restoring their “competitive edge” has little or nothing to do with helping American workers.

For years they’ve been cutting the jobs and wages of American workers in order to generate larger profits and higher share prices.

Some of these jobs have gone abroad or been outsourced to lower-paid contractors in America. Others have been automated. Most of the remaining jobs pay no more than they did four decades ago, adjusted for inflation.

When GM went public again in 2010 after being bailed out by American taxpayers, it boasted of making 43 percent of its cars in places where labor is less than $15 an hour – often outside the United States. And it got its American unions to agree that new hires would be paid half the wages and benefits of its old workers.

Capital is global. Big American corporations are “American” only because they’re headquartered and legally incorporated in the United States. But they could (and sometimes do) leave at a moment’s notice. They employ or contract with workers all over the world.

And they’re owned by shareholders all over the world.

According to research by the Tax Policy Center’s Steven Rosenthal, about 35 percent of stock in U.S. corporations is now held by foreign investors.

So when taxes of “American” corporations are cut – as the Trump-Republican tax bill seeks to do – foreign investors get a windfall.

That’s money that foreign investors would otherwise be paying into the U.S. Treasury.

By way of comparison, the combined tax cuts for families in the bottom 80 percent of the income distribution in the 30 states won by President Donald Trump comes to just $39.4 billion. That’s far less than the House bill gives away to foreign investors.

I’m not blaming American corporations. They’re in business to make profits and maximize their share prices, not to serve America.

I’m blaming politicians like Trump and the Republicans who are trying to persuade Americans that tax cuts on American corporations will be good for Americans.

It’s different for many corporations headquartered in Europe or Canada. Big corporations headquartered there are far more responsible for the well-being of the people living in those nations. That’s mainly because labor unions there are typically stronger there than they are here – able to exert pressure both at the company level and nationally.

As a result, American corporations distribute a smaller share of their earnings to their workers than do European or Canadian-based corporations. And top American executives make far more money than their counterparts in other wealthy countries.

Governments in other rich nations often devise laws through bargains involving big corporations and organized labor. This process further binds their corporations to their nations.

But in America, lawmakers respond almost exclusively to the demands of big corporations and of wealthy individuals (typically corporate executives and Wall Street moguls) with the most lobbying prowess and deepest pockets to bankroll campaigns. Meanwhile, unions are weak here, and “the preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy,” according to researchers.

Which is one reason why most Europeans and Canadians receive essentially free health care, generous unemployment benefits, paid medical leave, and an average of five weeks paid vacation.

So it shouldn’t be surprising that even though U.S. economy is doing well by most measures, and American-based corporations are overflowing with profits, the benefits are not trickling down to most Americans.

Given the dominance of American corporations on American politics, combined with their singular concern for share prices rather than the well-being of Americans, it’s folly to think they’ll turn tax cuts into good American jobs.

The tax bills big corporations are pushing through Congress are designed for one thing: to boost their share prices, not to boost the vast majority of Americans.

December 08, 2017

Amazon is looking to build a second headquarters somewhere in the US, and cities are falling all over themselves to offer Jeff Bezos the moon. CEO Bezos of Amazon is now worth $100 billion, the first man or woman to achieve that distinction, but cities are worshiping at his feet to offer up their first born sons to get him to locate his new headquarters in their cities. The Seattle Times reports it's not so much a takeover of these cities intent on wooing him. It's more like a surrender ... a surrender to the Lord and King in return for a mess of pottage. Last month Amazon announced it got 238 offers for its new, proposed 50,000-employee HQ2.

30 of these offers have been released so far under public-record acts so we can see what sordid depths cities will go to to get multi-billionaire Bezos, who obviously doesn't need the money, to locate the new Amazon headquarters in their city. All hail the Lord and Master. There’s a new wave, in which some City Halls seem willing to go beyond just throwing money at Amazon. They’re turning over the keys to the democracy. Here, Jeff. Here's the Key to the City. You run it and do whatever you want with the tax money. You run the government.

Chicago has offered to let Amazon pocket $1.32 billion in income taxes paid by its own workers. This is truly perverse. Called a personal income-tax diversion, the workers must still pay the full taxes, but instead of the state getting the money to use for schools, roads or whatever, Amazon would get to keep it all instead. As if Amazon and Bezos needed the money. He could probably afford to buy Chicago outright.

“The result is that workers are, in effect, paying taxes to their boss,” says a report on the practice from Good Jobs First, a think tank critical of many corporate subsidies.

Most of the HQ2 bids had more traditional sweeteners. Such as Chula Vista, California, which offered to give Amazon 85 acres of land for free (value: $100 million) and to excuse any property taxes on HQ2 for 30 years ($300 million). New Jersey remains the dollar king of the subsidy sweepstakes, having offered Amazon $7 billion to build in Newark. Stonecrest, GA has even offered to rename itself "Amazon."

But the City of Fresno, CA takes the cake. That city of half a million isn’t offering any tax breaks. Instead it has a novel plan to give Amazon special authority over how the company’s taxes are spent. Fresno promises to funnel 85 percent of all taxes and fees generated by Amazon into a special fund. That money would be overseen by a board, half made up of Amazon officers, half from the city. They’re supposed to spend the money on housing, roads and parks in and around Amazon. The proposal shows a park with a sign: “This park brought to you by Amazon,” with the company’s smiling arrow corporate logo.

As Fresno takes groveling to a new low level, we wonder why there is an economic divide, why the rich get richer and the poor get the shaft? Well, democracy is for sale to the highest bidder, to the city that will grovel the most before their future Lord and Master ... Jeff Bezos ... who, by the way owns the Washington Post. Now the Koch brothers are taking over Time magazine. We won't have to worry about getting unbiased news any more. We'll just get news that's favorable to the ruling class.

President Donald Trump lavished praise on himself when commenting on the federal response to the disaster that has overwhelmed Puerto Rico in the wake of Hurricane Maria. “I would give myself a 10,” he said on Oct. 19. “I think we’ve done a really great job,” he added, as Puerto Rico Gov. Ricardo Rossello sat silently by his side in the Oval Office. This was just two weeks after Trump’s visit to the island, where he lobbed rolls of paper towels at hurricane survivors. San Juan Mayor Carmen Yulin Cruz, appearing on the “Democracy Now!” news hour, responded, “If it’s a 10 out of 100, I agree, because it’s still a failing grade.”

Like the mayor, few think Trump has responded effectively. “We can’t fail to note the dissimilar urgency and priority given to the emergency response in Puerto Rico, compared to the U.S. states affected by hurricanes in recent months,” Leilani Farha, the United Nations special rapporteur on the right to housing, said, comparing post-hurricane relief efforts in Texas and Florida in a damning report issued on Monday by the Office of the United Nations High Commissioner for Human Rights.

“Democracy Now!” traveled to Puerto Rico last weekend to see the devastation firsthand. Well into the second month after Hurricane Maria hit, the island remains dark. By official estimates, almost two-thirds of the island is without electricity. In the meantime, the 3.5 million U.S. citizens of Puerto Rico struggle to obtain the basic essentials of life, as thousands leave the island for the mainland U.S., perhaps never to return.

There are people coming to the island, though: the disaster capitalists. As eloquently articulated by journalist Naomi Klein in her book “The Shock Doctrine: The Rise of Disaster Capitalism,” disasters both natural and human-made are increasingly being exploited by for-profit corporations and so-called free-market ideologues to reshape vast swaths of impacted societies, undermining social-welfare systems, privatizing public utilities, busting unions and making obscene profits rebuilding. Post-hurricane Puerto Rico is shaping up to be a textbook case of the shock doctrine.

“I wish I had never been introduced to that term,” Mayor Carmen Yulin Cruz told us at the Roberto Clemente Coliseum, the large sports arena in San Juan, where she and her staff have been living since the hurricane. “Using chaos to strip employees of their bargaining rights, rights that took 40, 50 years for the unions to be able to determine … it just means taking advantage of people when they are in a life-or-death situation. It’s an absolute mistreatment of human rights. It means that the strongest really feed off the weakest, until all that’s left is the carcass.

Case in point is the $300 million, no-bid contract awarded to Whitefish Energy to rebuild the island’s power grid. The Puerto Rico Electric Power Authority (PREPA) is the largest public electric utility in the U.S., providing electricity to the entire island of Puerto Rico. Hurricane Maria utterly destroyed the grid. Before Hurricane Maria hit, Whitefish, named after the town in Montana where it is based, had only two employees, and had never handled a contract larger than about $1.4 million. Whitefish just happens to be where Trump’s interior secretary, Ryan Zinke, is from. Zinke’s son had worked for Whitefish Energy in the past. We were in the Coliseum speaking with the mayor when San Juan Vice Mayor Rafael Jaume entered, carrying a copy of the Whitefish contract.

“‘In no event shall PREPA, the Commonwealth of Puerto Rico, the FEMA administrator, the Comptroller General of the United States or any other authorized representatives have the right to audit or review the cost and profit elements of the labor rates specified herein,'” Jaume read, expressing outrage. “You can read about it yourself. That’s black and white.” Both Mayor Cruz and Vice Mayor Jaume called the contract illegal, and demanded its immediate cancellation.

They were joined in that call by Angel Figueroa Jaramillo, head of UTIER, the Puerto Rico electrical workers union. We visited him in his offices in San Juan, which is still without power. As we spoke, news broke that Gov. Rossello had called for the cancellation of the contract. Jaramillo demanded not only that, but also the firing of the head of PREPA, who signed the contract, and a full criminal investigation into all those responsible for it. Like Mayor Cruz, Jaramillo is working to incorporate solar power into the rebuilt power grid, without privatizing the grid in the process.

In the meantime, Fortune 500 Fluor Corp. has also received a $200 million contract to work on the power grid. As Whitefish eventually heads back to Montana, there are two things you can be sure of: More disaster capitalists will be lining up to take its place, and the proud, resilient population of Puerto Rico, growing intolerant of the delays and the corruption, will be increasingly vigilant, while building momentum for renewable alternatives to the fossil-fuel power grid that has failed them.

Amy Goodman is the host of "Democracy Now!," a daily international TV/radio news hour airing on 1,100 stations in North America. She was awarded the 2008 Right Livelihood Award, dubbed the “Alternative Nobel” prize, and received the award in the Swedish Parliament in December.

Denis Moynihan is a writer and radio producer who writes a weekly column with Democracy Now's Amy Goodman.

The downfall of Sears Canada seems tragic and unnecessary, and the devastating blow to its employees should not have been allowed to happen.

Suddenly jobless after two decades as a sales manager for now-defunct Sears Canada, Rose Dalessandro found herself unable to pay for dental appointments for her two children. She could blame her financial difficulties and the demise of the once-mighty Canadian retail giant on the usual suspects — poor management, globalization, the rise of internet shopping.

But it might be more accurate to blame Eddie Lampert, the billionaire U.S. financier who is the company’s largest shareholder as chairman of Chicago-based Sears Holding Corp.

The downfall of Sears Canada seems tragic and unnecessary, and the devastating blow to its employees should not have been allowed to happen.

Once the leading department store in Canada, it was innovative and successful, with an extensive distribution network based on its early years in the catalogue and home delivery business.

Of course, many big players have gone under in the dog-eat-dog retail market of recent years.

But, whatever competitive pressures Sears Canada faced along with other big retailers, its controlling shareholders almost certainly made the company’s demise more likely with their decision to pay out more than $2.7 billion in dividends since 2005 to themselves and other shareholders.

Those dividends went heavily to its largest shareholder, Sears Holding, controlled by Lampert, according to Bloomberg and the Globe and Mail.

Forbes currently estimates Lampert’s wealth at $1.65 billion U.S., and describes the source of his fortune as “Sears, self made.”

Sears Canada might well have survived if some of the $2.7 billion paid out in dividends had been redirected into updating and redesigning its more than 130 stores to attract a new generation of shoppers.

If the company felt unable to compete, it could have, at least, set aside enough money to pay its employees severance and fully fund the company pension plan.

Instead, it left some 12,000 workers without severance and a shortfall of $270 million in its pension fund, leaving 18,000 retirees uncertain about collecting future benefits.

The media has devoted considerable attention to the story, and there’s been good reporting highlighting the role of Lampert in the Sears Canada demise.

There has been less focus on solutions. Indeed, there’s been a tendency to lament the plight of the Sears workers and even rail against human greed, but to resign ourselves to all this as a sad but inevitable aspect of today’s capitalism.

This sense of resignation is weird. We’re by no means helpless to prevent this sort of fiasco.

No, I’m not advocating the overthrow of capitalism, but rather something easier — changing our corporate laws so that those controlling corporations can be held personally liable for money owed to their employees.

If, for instance, Eddie Lampert were personally liable for his employees’ severance and pensions, he would have likely covered these costs from corporate funds before paying out $509 million in dividends in 2013.

“That’s what he would have done,” insists Harry Glasbeek, professor emeritus at Osgoode Hall Law School and author of Class Privilege: How Law Shelters Shareholders and Coddles Capitalists.

Holding people responsible for their actions and their debts isn’t some far-fetched, ultraleft idea. On the contrary, it’s a basic principle of our legal system, Glasbeek notes.

But we abandon this basic legal principle when it comes to laws governing corporations — by limiting the legal liability of those who control corporations. “This ‘limited liability’ is an extraordinary privileging of one class of people,” Glasbeek says.

It wasn’t always this way. Wealthy capitalists used to be personally responsible for unpaid wages when their businesses went under. But capitalists fought hard in the late 19th and early 20th century to win the right to limit their liability.

At first they won only a partial limit, but over the years U.S. and Canadian courts have extended that limit.

The change was fiercely resisted on the grounds that it would leave vulnerable employees in dire situations — like the situations faced today by thousands of Sears ex-workers.

Over the years, countless workers have found themselves similarly disempowered.

The Sears Canada tale is particularly epic, with a loyal workforce and a cartoon capitalist in Eddie Lampert — a hedge fund manager who reportedly owns three lavish homes and 288-foot megayacht, believed to be among the world’s biggest. (Who would have guessed?)

Of course, there will always be greedy capitalists. But we don’t have to continue to provide special legal privileges that allow them to simply turf long-time employees, and then sail off into the sunset scot-free.

October 02, 2017

Screwy Capitalism: When a Hedge Fund Runs a Profitable Company into Bankruptcy

by John Lawrence

Hedge funds are leveraged buyout artists. They borrow huge sums of money in order to buy up all the outstanding stock of some company. Then they make that company, not the hedge fund, responsible for repaying the debt. In many cases they can't do it and so go bankrupt. Meanwhile, the hedge fund managers have paid themselves handsomely out of the borrowed money which again is money owed to Wall Street banks by the company not the hedge fund managers. Another name for hedge funds is private equity funds. The game is the same. Borrow in such a way that the borrowers are not responsible for the debt. This is not what capitalism is all about, but is what it's morphed into.

Instead of investors taking risk, the useful work of private equity, they make risk for others, what John MacIntosh called its malevolent doppelganger. After stripping the company of any asset that can be stuffed into the pockets of the hedge fund or private equity managers, the risk associated with the weakened company is largely borne by its employees, suppliers and customers who get little (if anything) in return.

This is exactly what happened to Toys R Us recently. The Toys "R" Us debacle began in 2005 when private equity firms bought the company for $7.5 billion. Over the last 12 years, this original "take private" deal has probably sucked more than $5 billion out of the company: $470 million in "advisory" fees and interest to the private equity firms and $4.8 billion ($400 million per year for 12 years) in interest on the acquisition debt plus the tens of millions of dollars in legal fees Toys "R" Us will spend in bankruptcy. (It's ironic that the investors who bankrupted the company won't be paying any of these fees.) Yet despite a tough retail environment, Toys "R" Us actually made $460 million from selling toys in 2016 but that didn't help much since all of it -- 100% -- went to pay interest on the debt.

The media portrays the Toys R Us bankruptcy as the plight of brick and mortar stores being handed their lunch by online retailers such as Amazon. Nothing could be further from the truth. The bankruptcy had to do with a transfer of money from the 99% such as the employees and suppliers to the 1%, the bankers, lawyers and financiers. Since all the interest paid was tax deductable, taxpayers also got screwed.

The extreme perversity of this situation is that the borrowers of money are not on the hook to pay it back. If you borrow money to buy a car or a house, you are on the hook. Not so when the borrowed money is used to buy a company. The limited liability corporate structure developed in the mid-19th century as a "corporate veil" to encourage investors to put money into companies is what allows investors to take money out without being on the hook. This law can and should be changed so that hedge and private equity funds cannot bankrupt companies, load them with debt, screw the employees, make them take less in wages, destroy their unions and raid the pension funds. A country that allows this to happen is intent on increasing the economic divide between rich and poor.

These leveraged buyout artists are nothing but parasites preying on and destroying companies for their own profits. They do nothing constructive in the process!

A sane economic system would not let this happen. You can have a system which encourages entrepreneurship and economic growth without the perverse economic ramifications of American capitalism.

September 30, 2017

Trump and Republicans are trying to sell you the idea that American corporations need a tax cut in order to be competitive. That’s rubbish. Here are 6 reasons why:

First, American corporations don’t need it in order to be competitive internationally. After tax credits and deductions, their effective tax rate is just about the same as paid by corporations in most of our major trading partners, according to the U.S. Treasury.

Second, American corporations are making more money than ever. Their after-tax profits are a higher share of the total economy than ever. American corporations earn nearly half of all global profits, even though the U.S. economy is about a fifth the size of the world economy.

Third, the long-term competitiveness of American corporations depends far more on a well-educated and skilled workforce, modern infrastructure, and basic research than on tax rates. And the way we finance these necessary public investment is through … taxes.

Fourth, American corporations are now paying less in taxes than they have in 65 years. Corporate tax receipts are the lowest percentage of the economy since just after World War II. If corporate taxes are cut, you will have to pay even more in taxes in order to make up the difference.

Fifth, if their taxes were cut, corporations won’t use the extra money to make new investments in plant, equipment, research and development, or jobs. They’re already using their vast stockpiles of cash to buy back shares and thereby boost stock prices, and for extravagant bonuses and salaries to CEOs and other top executives. That’s what they would do with any additional cash.

Sixth, the reason they’re not investing more is because consumers don’t have the purchasing power to buy more, and that’s because most people’s incomes have gone nowhere for decades. And why is that? Because corporations have been holding down wages by outsourcing abroad, substituting software for jobs, contracting work out to part-time workers, and fighting unions.

A corporate tax cut is the wrong solution to the wrong problem. The real problem is stagnant wages of most Americans, coupled with declining public investments in schools, roads, public transportation, and basic research – all the things average working Americans need in order to become more productive and get higher wages. To finance these we need higher corporate taxes, not lower.

September 05, 2017

I've heard of frivolous lawsuits before, but the ridiculous just turned into the absurd because two fast food hamburger chains are involved in a lawsuit over the names of their burgers! In-N-Out is suing Smashburger on the grounds that the name of Smashburger's Triple Double is too close to In-N-Out's Double Double. So, really, the courts should be occupied with such nonsense? It just goes to show how much money is involved in hamburgers and fast food in general while the health of the eating public suffers.

Evidently, In-N-Out had the foresight to trademark their Double Double burger. Now Smashbuger one ups them and adds another beef patty calling their burger a Triple Double. Isn't it absurd when In-N-Out argues in court before a judge (as if there weren't any more important matters for the judge to spend his time on) that Smashburger's Triple Double infringes on In-N-Out's trademark and "dilutes its distinctive quality"?

As if something loaded with fat and calories that was derived from cows fed with antibiotics to make them grow fatter sooner could have a "distinctive quality." These cows have also consumed a diet of genetically modified food that has been slathered with herbicides and pesticides. And then they wonder why people are overweight? Eat one of these tasty burgers on a regular basis, and you'll gain a ton before you know it. Is all that matters in terms of quality how something tastes? What about the consideration of the health benefits?

In a prepared statement, Smashburger CEO Tom Ryan said the Triple Double burger "is not comparable to any In-N-Out menu offering." Well, I guess, if that's the case, In-N-Out's Triple Triple infringes on Smashburger's Triple Double as it entails 3 patties and 3 slices of cheese which would be one cheese slice away from Smashburger's Triple Double. Ryan went on, "Frankly, we are flattered by the attention In-N-Out has given our Smashburger Triple Double."

In documents filed with the court, In-N-Out describes the Double Double as "a sandwich, namely, a burger the principal ingredients of which are two meat patties and two slices of cheese." It's Triple Triples are described as "made-to-order cheeseburger sandwiches having three cooked beef hamburger patties and three cheese slices, for consumption on or off the premises." That's a fine legal distinction there - "on or off the premises." I'm sure law school professors dwelt on that for more than one semester.

Does it really come down to the two litigants arguing over a beef pattie? After all the Double Double has two patties and two cheese slices while the Triple Double has three beef patties and two cheese slices. We wouldn't want there to be any likelihood of consumer confusion over whether or not In-N-Out has licensed Smashburger to use its marks or that In-N-Out is somehow affiliated or connected with Smashburger. No, they are two separate legal entities, and never the twain shall meet - except in court that is.

The high power lawyers will argue the finer points of how many angels (burgers?) can dance on the head of a pin while getting rich in the process. May the best burger win!

I was recently informed by a former California public health employee, that CalPERS, the state's pension and health care fund, the largest in the nation, has invested $136 million in Monsanto.

As a California activist committed to healthy communities, I see this investment as a huge conflict of interest. For its health plan subscribers, the CalPERS mission to “advance the financial and health security” of the participants does not align with the detrimental effects of the toxic herbicide Roundup, Monsanto’s number-one product.

The day after finding out about this ill-advised investment, I sent a letter to CalPERS urging it to divest from Monsanto. It hasn't responded.

Concerned Californians should be outraged by this investment by CalPERS in Monsanto and the harm that inevitably impacts the very retirees CalPERS is responsible to protect.

We listed several items for the board to review which will hopefully initiate a decision by CalPERS to divest from any investment in Monsanto.

In 2015, the International Agency for Research on Cancer, the World Health Organization's cancer agency, deemed that glyphosate, Roundup's key ingredient, is a probable carcinogen. In addition to this, the California EPA decided that glyphosate-based herbicides (GBH) like Roundup must be labeled as containing a carcinogen.

Roundup has been proven to cause liver disease at levels lower than what is allowed in our food. One out of 10 Americans now suffer from non-alcoholic fatty liver disease.

Due to the spraying of this herbicide on crops as a drying agent and on GMO crops for weed control, glyphosate is now found in the majority of our food, streams, rain, tapwater and even our urine. It's also been detected in breast milk, vaccines and pregnant mothers.

Glyphosate is a patented antimicrobial, causing gut dysbiosis and inflammation, which can lead to diabetes, obesity, autoimmune diseases and dementia.

Glyphosate-based herbicides are also endocrine disruptors, which can lead to miscarriages, infertility and infant death. The U.S. has 50 percent more babies who die on the first day of life than all of the industrialized nations combined.

Glyphosate-based herbicides are also neurotoxins, which can lead to learning disabilities, mental illness, addiction, depression and even acts of violence. 1 in 6 U.S. children have developmental delays.

Glyphosate also acts a chelator, which causes mineral deficiency, which can lead to cancer.

According to the California State Department of Public Health, 1,382,200 people were diagnosed with cancer in 2014, and 155,920 Californians are diagnosed with new cases of cancer every year. This is equivalent to nearly 18 new cases every single hour.

Monsanto's products have also been shown to kill bees. One third of our nation's food is dependent on bees, many of which are now on the endangered list. Without California's agriculture industry, the United States will be unable to feed its own citizens. It's a matter of national security to divest from a company that manufactures chemicals that kill bees.

It is critical to inform and educate all investors in Monsanto of the dangers of glyphosate in their food and the environment. In the past, my organization, Moms Across America, has sent over 100 letters to the top hedge fund investors of Monsanto requesting divestment. Investing in a company that causes tremendous harm to our country is immoral and self sabotaging.

We understand Monsanto was once considered a safe investment. But times have changed and new studies and discoveries have emerged. These new developments do not bode well for Monsanto. They are legitimate reasons for divesting.

Monsanto's Roundup and hundreds of other brands containing glyphosate will soon be labeled as carcinogens in California's Prop 65 list, according to a newly passed California state ruling.

An EPA staffer, Jess Rowland, has been accused of colluding with Monsanto to downgrade carcinogenic effects of glyphosate. And Monsanto has been accused of ghostwriting the Roundup cancer studies, which show "safety."

New studies show that Roundup causes liver disease and glyphosate-based herbicides are decisively linked to cancer in Argentina. Another study shows endocrine disruptors, such as those found in Roundup and glyphosate-based herbicides, are the major contributing factor to the drastic decline in the quality of men's sperm.

In a groundbreaking turn of events, Moms Across America has been informed that the EPA has confirmed that the National Toxicology Program will assess the final formulation of glyphosate-based herbicides and the EPA will take its assessment into consideration for its review and decision on whether to renew or revoke the license of glyphosate.

Investing in a company that sells toxic products is counter to CalPERS' mission. CalPERS should fully divest from Monsanto immediately.

January 03, 2016

A San Diego group of attorneys is suing Monsanto to get millions of dollars for remediation projects to clean up San Diego Bay. Polychlorinated Biphenyls (PCBs) have been linked to cancer, neurological damage, thyroid problems and reproductive complications. Monsanto is all about the profits even when it has knowledge that what it's selling is poison. Cases have been filed in Federal Court in San Jose, Oakland and Spokane in addition to San Diego. Dozens more cities across America may soon follow suit.

Municipalities have been forced to shell out millions to clean up rivers, creeks and bays. It has been established that fishing in such places and consuming those fish is dangerous to human health. PCBs have shown up in breast milk and sea lions among other places. They are ubiquitous in our environment.

Monsanto marketed the PCBs under the trade name Aroclor. The chemicals accumulate in fish that are devoured by humans with the result that almost everybody who eats fish has a certain amount of PCBs in their system. PCBs were used in electrical equipment, highway paint, caulk and many other products. Monsanto's position is that, if their product was improperly disposed of, it was not their fault. Under California's public nuisance laws, however, a company may be held responsible if it knowingly marketed a product even though it knew it was hazardous.

Monsanto officials knew as early as 1969 that Aroclor was dangerous, but decided to keep manufacturing and marketing it anyway in order to increase profits. Their official discussions went so far as to say that Aroclor was likely a "global contaminant." Monsanto employees had thrown fish into a heavily contaminated creek and discovered that they started bleeding and losing their skin in about 10 seconds.

The Oakland city attorney said that the chemical giant "chose profits over people, and American cities and citizens are still suffering the consequences."

Robert Reich Nails Monsanto's Modus Operandi

In an excellent book, Saving Capitalism (For the Many, Not the Few), Robert Reich has a great section on Monsanto. I, therefore, give over the rest of this article to a quotation from this book:

Monsanto, the giant biotech corporation, owns the key genetic traits in more than 90 percent of the soybeans planted by farmers in the United States and 8o percent of the corn. Its monopoly grew out of a carefully crafted strategy. It patented its own genetically modified seeds, along with an herbicide that would kill weeds but not soy and corn grown from its seeds.

The herbicide and herbicide-resistant seeds initially saved farmers time and money. But the purchase came with a catch that would haunt them in the future: The soy and corn that grow from those seeds don't produce seeds of their own. So every planting season, farmers have to buy new seeds. In addition, if the farmers have any seeds left over, they must agree not to save and replant them in the future. In other words, once hooked, farmers have little choice but to become permanent purchasers of Monsanto seed. To ensure its dominance, Monsanto has prohibited seed dealers from stocking its competitors' seeds and has bought up most of the small remaining seed companies.

Not surprisingly, in less than fifteen years, most of America's commodity crop farmers have become dependent on Monsanto. The result has been higher prices far beyond the cost-of-living rise. Since 2001, Monsanto has more than doubled the price of corn and soybean seeds. The average cost of planting one acre of soybeans increased 325 percent between 1994 and 2011, and the price of corn seed rose 259 percent. Another result has been a radical decline in the genetic diversity of the seeds we depend on. This increases the risk that disease or climate change might wipe out entire crops for years, if not forever. A third consequence has been the ubiquity of genetically modified traits in our food chain. At every stage, Monsanto's growing economic power has enhanced its political power to shift the rules to its advantage, thereby adding to its economic power.

The Fight to Label GMOs

Beginning with the Plant Variety Protection Act of 1970, and extending through a series of court cases, Monsanto has gained increased protection of its intellectual property in genetically engineered seeds. It has successfully fought off numerous attempts in Congress and in several states to require labeling of genetically engineered foods or to protect biodiversity. It has used its political muscle in Washington to fight moves in other nations to ban genetically engineered seed. To enforce and ensure dominance, the company has employed a phalanx of lawyers. They've sued other companies for patent infringement and sued farmers who want to save seed for replanting. Monsanto's lawyers have also prevented independent scientists from studying its seeds, arguing that such inquiries infringe the company's patents.

You might think Monsanto's overwhelming market power would make it a target of antitrust enforcement. Think again. In 2012, it succeeded in putting an end to a two-year investigation by the antitrust division of the Justice Department into Monsanto's dominance of the seed industry. Monsanto has the distinction of spending more on lobbying—nearly $7 million in 2013 alone—than any other big agribusiness. And Monsanto's former (and future) employees frequently inhabit top posts at the Food and Drug Administration and the Agriculture Department, they staff congressional committees that deal with agriculture policy, and they become advisors to congressional leaders and at the White House. Two Monsanto lobbyists are former congressman Vic Fazio and former senator Blanche Lincoln. Even Supreme Court justice Clarence Thomas was at one time an attorney for Monsanto. Monsanto, like any new monopoly, has strategically used its economic power to gain political power and used its political power to entrench its market power.

It's useful to view the strategy of the new monopolists as integrating economic and political dominance. They acquire key patents and then spend vast sums protecting them and charging others with patent infringement. In addition, they use mandatory licensing agreements to require potential competitors to use whole lines of their products and prevent customers from using competing products, thereby creating de facto industry standards. Favorable court rulings, advantageous laws, and administrative decisions to forgo antitrust lawsuits or bring them against competitors extend these de facto standards to entire sectors of the economy. [end quote]

And so, dear reader, we live in a world in which large corporations feel free to pollute and despoil the environment including the food we eat because they have not only market dominance but because they have political dominance as well. The revolving door between government and corporations swings ever so easily, the hinges are well lubricated. Congresspersons and their staff have easy access to lucrative jobs once they have established their contacts on the inside. They just have to lobby their old friends on behalf of Monsanto and other large corporations giving them a free license to pollute and purvey dangerous products. The hallmark of these products is not that they will kill you immediately like the poor fish that Monsanto employees threw into a PCB polluted river, but that the symptoms will show up as cancer and other related diseases years later when Monsanto can no longer be linked to those outcomes.

More Bad News for Monsanto

The Organic Consumers Association (OCA), IFOAM International Organics, Navdanya, Regeneration International (RI), and Millions Against Monsanto, joined by dozens of global food, farming and environmental justice groups announced December 4th, 2015 that they will put Monsanto on trial for crimes against nature and humanity, and ecocide, in The Hague, Netherlands, next year on World Food Day, October 16, 2016.

Vandana Shiva, physicist, author, activist and founder of Navdanya, and member of the RI Steering Committee said: “Monsanto has pushed GMOs in order to collect royalties from poor farmers, trapping them in unpayable debt, and pushing them to suicide. Monsanto promotes an agro-industrial model that contributes at least 50 percent of global anthropogenic greenhouse gas emissions. Monsanto is also largely responsible for the depletion of soil and water resources, species extinction and declining biodiversity, and the displacement of millions of small farmers worldwide.”

Andre Leu, president of IFOAM and a member of the RI Steering Committee, said: “Monsanto is able to ignore the human and environmental damage caused by its products, and maintain its devastating activities through a strategy of systemic concealment: by lobbying regulatory agencies and governments, by resorting to lying and corruption, by financing fraudulent scientific studies, by pressuring independent scientists, and by manipulating the press and media. Monsanto’s history reads like a text-book case of impunity, benefiting transnational corporations and their executives, whose activities contribute to climate and biosphere crises and threaten the safety of the planet.”

Get set for an epic battle between a corporation that is destroying the planet and those who are pushing back against this monstrous corporate behemoth.

November 24, 2015

CEOs Got a Pay Increase Last Year But No COLA for Social Security Recipients

The Social Security Administration announced that senior citizens would get no increase in their monthly checks because there wasn't any inflation last year as measured by the increase in paychecks for urban and clerical workers. Yes, those workers didn't make any more money, but CEOs certainly did. Why don't they gear their index to the increase in paychecks for CEOs? That was a whopping 3.9%. Senators Bernie Sanders and Elizabeth Warren (the only Senators who stand up for We the People) are introducing legislation that would give seniors the same increase that CEOs got last year. It has a snowball's chance in Hell of passing, but they get A for effort.

It would provide an emergency payment of about $580—that's equal to 3.9% of the average annual Social Security benefit—which could help some 70 million seniors, veterans, people with disabilities, and others meet critical needs. The average CEO compensation for the 350 largest firms was $16.3 million in 2014. While CEO pay is skyrocketing, they are also enjoying a savory loophole which gives them even further gains. That's right, CEO paychecks are subsidized by you, the American taxpayer. As long as the CEO pay is considered "performance based," anything over a million dollars can be deducted from taxes by corporations. If these companies paid the statutory 35 percent corporate income tax rate, their use of the performance-based compensation loophole for just the 20 highest paid CEOs cost American taxpayers $235 million.

CEOs and their corporate lawyers are becoming increasingly savvy about rigging the system to their advantage. And they also have the benefits and the services of lobbyists who write the laws that favor the already rich. “Especially during a long-term recession giving rise to major cuts in public services, and after American taxpayers bailed out Wall Street to the tune of trillions of dollars, it’s unconscionable that we continue to subsidize CEOs’ exorbitant salaries,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division.

The government has all kinds of rules which nitpick social security checks down and practically force social security recipients into privatized Medicare Advantage programs. If this trend continues, Medicare will be eliminated by the fait accompli caused by transitioning to Medicare Advantage. For example, I started traditional Medicare in 2006. I wanted to stay away from Medicare Advantage on principle. I had no "secondary insurance" or Medicare Part D which is drug coverage. The Advantage programs give you all of the above for the same price as traditional Medicare (for now).

The way I look at it, I saved the government tons of money by virtue of the fact that I didn't take any drugs at all for 9 years after starting Medicare. But this year I had to go on blood pressure medicine. Even though it's so cheap I could pay out of pocket, I figure at this point in my life I need drug coverage and the lack of secondary insurance, which would cost a fortune if I needed to use the medical system at all, forces me onto a Medicare Advantage program. How you might ask does this relate to Social Security? They take $104.90 out of my social security check each month for Medicare Part B. They'll take out the same amount for Medicare Advantage. However, next year they will be taking even more because I have to pay a Medicare Part D penalty for all the years I didn't have Medicare Part D and didn't need or use prescription drugs.

I Will Pay a Penalty for Staying Healthy

So even though I didn't take any prescription drugs for the last 9 years and the drug I'm on now with co-pay will cost the government practically nothing, if I want drug coverage now, I have to pay a penalty of 1% of the "national base beneficiary premium" ($33.13 in 2015, $34.10 in 2016) times the number of full, uncovered months I didn't have Part D or creditable coverage. That comes to almost $40 a month that will come right off the top of my social security check.

But I digress. Two thirds of seniors rely on Social Security for the majority of their income. The Republican controlled Congress sets the rules which deliberately advantage their corporate overlords at the expense of average American seniors. The amounts paid out are completely arbitrary. There is no linkage between the amount paid into social security with FICA taxes and the amount ultimately received in the form of social security. While CEOs and billionaires are advantaged by the tax code that Congress sets, when they retire, they also receive social security checks each month taking money away from people who actually need it.

Progressives usually support everyone getting a social security check on the grounds that it is an entitlement, and as such won't be eliminated by Congress the way a "needs based" payout would. Well, guess again. No matter whether you call it an entitlement or a welfare program, conservatives are bound and determined to get rid of it and Congress can do just that at their discretion. There are no individual accounts, and you are not entitled to receive any amount of money regardless of what you paid in. It's all up to Congress and at their discretion.

The only people standing up for senior social security recipients in Congress are Bernie Sanders and Elizabeth Warren. In fact Bernie and Elizabeth want to expand social security benefits which they should be if they don't want seniors eating their cat's food. The Social Security Administration nickels and dimes recipients to death. In addition to the Part D penalty, I actually pay into social security each year a significant percentage of what I receive in benefits because I'm still working.

Ronald Reagan Screwed the Self-Employed

Since I'm self-employed, Ronald Reagan and Alan Greenspan (the Ayn Rand acolyte) came up with a nifty plan which involved making self-employed citizens pay both the employee's part and the employer's part of FICA tax which will be 12.4% for 2016. For example, if I earn $10,000 in 2016 through actual work, I will pay $1240 in FICA (social security) taxes in addition to income tax. But even though I keep paying in, I get only a couple of dollar increase in my social security check each month. The total increase of my social security check each year due to continually paying in to social security amounts to a minuscule percentage of what I actually pay into social security each year.

This year in fact, despite having paid over $1000. into social security in 2014, I received a $1. increase in my monthly social security check. I received a letter detailing these benefits. It says in part: "We increased your benefit amount to give you credit for your 2014 earnings." Hoorayy! The letter goes on to say that they will pay me $10.00 representing the dollar a month increase from January to October. Then from November going forward, I will receive a one dollar addition to my monthly check. Whoopee!! A whole dollar a month extra. That won't even buy a can of food for my cat!

You know what? They could just stop charging me FICA taxes since I'm already receiving social security and then they could do away with the monthly increases for the rest of my life. That would be fine with me. Make sense?

Meanwhile, the fatcat CEOs who made an average of $16.3 million last year only pay FICA taxes on the first $118,500 of that, and they only pay 6.2% not 12.4% like me. Thanks Alan Greenspan and Ronald Reagan who never tired of thinking of ways to bilk the poor while giving advantages to the rich.

Republicans never tire of saying that the Social Security trust fund is running out of money. It would never run out of money and benefits could be greatly expanded if the cap ($118, 500) was lifted and CEOs making an average of $16.3 million paid their 6.2% FICA tax on their entire income. That would amount to approximately a million dollars as opposed to the $7347 they pay now which is simply a rounding error of .045% on the amount of money they make.

"If we do nothing, on January 1st, more than 70 million seniors, veterans, and other Americans won't get an extra dime in much-needed Social Security and other benefits. And while Congress sits on its hands and pretends that there's nothing we can do, taxpayers will keep right on subsidizing billions of dollars' worth of bonuses for highly paid CEOs," Warren stated. "Giving seniors a little help with their Social Security and stitching up corporate tax write-offs isn't just about economics; it's about our values."

Sanders Calls the Lack of a COLA "Unacceptable."

"At a time when senior poverty is going up and more than two-thirds of the elderly population rely on Social Security for more than half of their income, our job must be to expand, not cut, Social Security," Sanders said in a press statement. "At the very least, we must do everything we can to make sure that every senior citizen and disabled veteran in this country receives a fair cost-of-living adjustment to keep up with the skyrocketing cost of prescription drugs and health care."

November 12, 2015

Follow the money: Almost all subsidies go to big business

Considering how much politicians of all stripes praise small business as the backbone of America, the crucible of job creation and heart of the economy, what a tiny Washington research group found may surprise you.

Our elected leaders have been throwing massive and growing sums of money at businesses through cash gifts, loan guarantees, property tax exemptions and countless other perks. Five years ago state and local business welfare alone came to $900 for each family of four, an astonishing $70 billion diverted from public purposes to private gain. And then there’s the much larger torrent of subsidies flowing from Washington.

But that money isn’t going to small businesses. In some states big business gets almost every dollar handed out, according to a study of those giveaways that governments disclose in the public record. Other such pork is kept hidden from public view.

The yeoman work was done by Good Jobs First, whose staff dug through mountains of paperwork, much of it written in a dialect I call bureaucrateseobfuscata.

Translating the documents into plain English, the researchers scrutinized 4,288 subsidy deals in 14 states. The researchers found that small business gets scraps, while big business enjoys a sumptuous banquet. In some states for each dollar subsidizing small businesses, big businesses got $24.

No public debate

Given how incessantly politicians intone about “small business” and how much of the presidential campaign and debates have been about taxes, spending and proposals to narrowly redefine what is appropriate government policy by slashing programs for the old, poor and sick, you might think the study would have made lots of news when it was released last month. Sadly, the diversion of tax dollars that the report “Shortchanging Small Business” documents was largely ignored by our major news organizations.

Good Jobs First tells me it reached out to more than a dozen reporters at The Associated Press, Bloomberg and Reuters news services as well as five reporters and two columnists at The New York Times, four writers at The Washington Post, two at USA Today, five at NPR and Marketplace radio and many more.

Coverage? None from the news outlets listed above except for an AP story out of Kansas based on a report in a local business paper.

Funny how the candidates hardly talk about business subsidies, especially since one of them has collected hundreds of millions of dollars in corporate welfare.

But the studied silence by the candidates, and especially the welfare-collecting Donald Trump, may reflect just who benefits these days from public money put to private benefit. Among the beneficiaries are CBS, Comcast, Disney and Fox, parent companies of the television outlets sponsoring various of the debates, leaving them open to challenge if their journalists ask questions about subsidies.

It’s not just the big businesses that benefit. It’s the politicians, too. When they leave office, those who helped give away your tax dollars often land lucrative jobs in subsidized industries.

Subsidies of all kinds enable politicians — instead of the market — to pick winners and losers.

A long history

Giving taxpayer money to support business is almost as old as the Republic, but this welfare was not always aimed at big business.

Those 18th Century subsidies helped the American cod-fishing industry, which the British Navy was harassing. The subsidy went only to ships that paid fisherman in shares of the profits under contracts negotiated in advance, which to me sounds like modern collective bargaining. The workers got 62.5 percent of the subsidy, the owners just 37.5 percent under smart rules devised by Thomas Jefferson, then secretary of state, to make sure only well-run enterprises got help.

Early federal leaders favored grants or sales of land on favorable terms, but only to yeoman farmers, according to Rutgers professor Joseph Blasi, the book’s lead author.

Just a few decades later the policy shifted to big giveaways that Blasi says the Founders would have opposed. Among the first beneficiaries were companies digging canals and building railroads, infrastructure the nation needed. The rail companies were given vast tracts of land and paid handsomely for laying track. Still, they lied, cheated and stole on a grand scale with no prosecutions for these crimes.

One of White’s great insights is that the railroads invented lobbying as we know it today, in which donations, favors and sowing confusion pay off with big gifts from the government and sinecures for the politicians who go along.

Subsidies of all kinds enable politicians — instead of the market — to pick winners and losers. These favors distort decisions, as companies pursue free money instead of sound long-term investments. And they often go to retailers such as Walmart, which being at the end of the chain of economic value added cannot promote economic growth, though they can diminish retailers not so favored with gifts from government.

Sunlight needed

There is a way to reform this: sunlight and noise.

You can make this happen, using the kind of citizen power that we just saw at the University of Missouri, where both a campus president and the system chancellor resigned under public pressure.

Demand laws at every level of government requiring full and prompt disclosure of subsidies with annual reports signed by mayors, governors and the president.

Complete details would include company names, sites where the money was used, the dates and amounts of each check or forbearance and the performance standards for those collecting the welfare, that last a policy Thomas Jefferson surely would endorse. How much receiving companies spent on lobbyists and campaign donations and any relatives of politicians they retained on contract or hired should also be disclosed.

How to make that demand? Ask the candidates through their web pages. When their fund-raisers call, tell them you want to hear first what their exact promises are about corporate welfare. And when candidates show up in your town organize people and go demanding full, prompt and transparent disclosure of gifts. Call radio talk show hosts and get them engaged. Write brief letters to the editor. And complain to the networks, major newspapers and wire services about the lack of coverage of corporate welfare.

June 24, 2015

Why Don't Corporations Contribute to Charity Instead of Hitting Up Their Customers?

Do you find it annoying to be hit up for a donation every time you make a purchase? You're out buying groceries or cat food or mouthwash and you get asked to make a donation to some charity. "Would you like to contribute a dollar to help homeless dogs?", the check out person asks. I'll tell you what. Why don't you reduce my total by $1.00 and contribute that to charity? Do you think Walgreen's or Petco could afford that? Give me a dollar off my freakin' bill. I just scraped enough money together to make sure our cat is adequately fed and doesn't go homeless.

I really think I am capable of making my own decisions about what charities I want to donate to. I don't want to be prompted every time I buy something. And is Walgreen's CEO who made over $13 million in 2013 contributing anything in this campaign? Heck no, and neither are the Board of Directors who make tons of money in stock grants for attending a few meetings per year.

"If there's a bunch of people in line behind me and the cashier asks me to make a donation, it makes me feel so trapped and judged, especially if it's for the troops," said Jennie Blackburn, who frequently gets solicited at Walgreens and Publix. "It's a lot of pressure."

Joe Loveland says "It feels like the glaring checkout person is judging while customers are craning their necks to see what kind of sociopath would deny hope to the homeless puppies, cancer battlers or wounded warriors." What the other customers don't know is that the person not contributing at the check out line might prefer to contribute to another charity and would prefer his or her dollars to go there.

Let's have matching contributions from the CEO and Board of Directors and then I might feel better about contributing something. But they take nothing out of corporate profits to contribute to charity. "CVS and Walgreens, which owns the Duane Reade drug stores in metropolitan New York, said that they pick up the administrative costs of the campaign and send every dollar donated to the charity. The companies said they don’t typically match consumers’ contributions ..."

Are they just dunning their customers while they use their customers' charitable contributions as a tax write off? Do I really have to get badgered every time I go to Walgreen's? Where's the "no hassle" check out line? Target has a sign outside that says "No Soliciting." It's supposed to guarantee a "hassle free shopping experience". Well then, why do they hassle you inside the store?

Whole Foods Market and Petco are among the many companies that collect donations at the checkout counter. At Petco, donations all go through the Petco Foundation, which keeps less than 10 percent for administrative overhead. The rest helps thousands of local animal groups like Gimme Shelter, which rescues abandoned cats.

“We have great success with our customers. They are open hearted, they want to give, they want to help animals in the community,” said Lori Morton Feazell, Petco’s Director of Animal Care and Education.

Is Petco or Walgreen's Matching Their Customers' Contributions?

So Petco is taking 10% of customers' charitable donations to pay some administrator? They can't even contribute that? Are they giving anything out of their considerable profits or is it just their customers they're trying to shame into giving?

And whether the customer is rich or poor, they all get hit up the same. I'm for charitable giving for those well enough off to do it, but I don't think poor people who need the money for their basic expenses should be donating to charity. Petco doesn't care. They're equal opportunity dunners.

I'll state it emphatically. Poor people and those with less than six months expenses in savings should not contribute to charity. Charity begins at home. Do you have enough in savings to support yourself in retirement? Then you have no business contributing to charity. Contribute to your own retirement account or savings account instead or you may end up being a charity case yourself.

Are your kids' financial futures secure? If not, you might end up being their charitable contributor of last resort. Philanthropy i.e. charitable contributing is something that the rich should feel obligated to participate in, but dunning the poor and lower middle class at Petco and Walgreen's is a cynical exercise to make the corporations look good at the expense of people who should not for the most part be contributing to charity.

Rich people should be doing their own research to see what charities are worthy of contributions, but often they are only interested in legacy contributions i.e. something that they can get their name on for posterity. If the charity is keeping more than 20% of contributions for administration, advertising or fundraising, you are participating in a scam by contributing to them .

For instance, Paralyzed Veterans of America spends almost 70% of contributions on administrative and fundraising expenses. They spend only 32.5% of donations to actually help paralyzed veterans. You be the judge.

The comedian, Lenny Bruce, went door to door wearing a cleric's collar asking for donations to some charity that he made up. Most of the money went right in Lenny's pocket, but he did keep his nose clean with the IRS by writing a small check to the purported victims he was supposedly trying to help. Check out a charity with a website such as Charity Watch which rates charities A to F before donating.

What About CEOs Who Make Millions Without Matching Customer Contributions?

San Diego based Petco's CEO is James M. Myers. He's donated money to his alma mater, John Carroll University, but to homeless pets? I don't think so. The website ceopaycut.org contacted CEOs including Mr. Myers asking them to pledge to take a pay cut in order to spread the wealth. "Jim" Myers was one of the CEOs contacted. His email is jim.myers@petco.com. So far it's been 3 years and there has been no response from Mr. Jim Myers.

But he's just typical of most. None of the others contacted has responded either. Mr. Myers is also on the Board of Directors of Jack in the Box Corporation from which he has received a bunch of generous stock grants. But youth wants to know: has "Jim" matched his customers' contributions to help homeless pets? I doubt it. If he had, we'd hear about it.

Petco's Jim Myers, while manipulating customers into donating for homeless pets, has also been responsible for sickening pets that do have a home. In January 2015 Petco pulled Chinese made cat and dog treats off their shelves after reports that they had sickened their customers' pets. They also have stopped selling a boozy treat meant to calm dogs as of January. They have taken the Good Dog Pet Calming Supplement off their shelves after some protested over the alcohol content of the product. The product contains an astonishing 13 percent alcohol.

The ASPCA has previously warned against the ingestion of alcohol by animals, saying even the smallest amount can be fatal.

This comes just two weeks after the San Diego-based company removed all Chinese-made dog and cat treats from its website and stores over fears they were linked to 1,000 dog deaths since 2007 - and an unknown number of animal illnesses.

The illnesses and deaths were linked to a number of treats, including chicken, duck or sweet potato jerky.

'We know some pet parents are wary of dog and cat treats made in China, especially Chicken Jerky products, and we’ve heard their concern,' said Petco CEO Jim Myers in a statement last May.

As of 2009, Jim was making over $800,000 in salary and bonus not including stock options. His nonvested stock options were valued at $734,550. This doesn't count all the stock granted due to his position on the Board of Jack in the Box.

But how much has Jim given for the sake of homeless pets? For all I know he may be using his customers' charitable contributions as a tax write off for Petco. There is no stated policy in this regard. I would feel better if customers' donations were matched by those of CEOs and owners.

Walgreen's at least, unlike Petco, donates 100% of customer donations to charity. They absorb the administrative costs themselves. Many companies match their employees' gifts to charity. Not Walgreen's. Let alone customer donations. No way they're matching them. They have no problem dunning employees and customers, but mum is the word regarding corporate profits.

Gregory D. Wasson President and Chief Executive of Walgreen's until 2014 made $13,632,741 for fiscal year 2013. He is also a Director of Verizon. How much did he donate to match his customers' charitable donations? After his departure Stefano Pessina took over as CEO. Walgreen's has other fish to fry than worrying about matching their customers' charitable donations.

Recently they were considering moving their corporate headquarters to Switzerland to avoid paying US taxes. Barry Rosenstein, founder and managing partner of New York-based hedge fund Jana Partners pushed for Walgreen's to move its headquarters to Europe to slash its tax bill, an idea that Walgreen's backed away from in August following a firestorm of public controversy and congressional backlash.

Walgreen's, in addition to bilking its customers out of charitable contributions, also lets its employees contribute to charity while not making any matching charitable contributions itself:

The Charity Choice program allows Walgreens employees to donate to four organizations aimed at improving health and wellness -- Juvenile Diabetes Research Foundation, American Heart Association, American Cancer Society and United Way. Each pay period, employees elect the amount they choose to donate.

These corporations are all for their customers and employees contributing to charity while neglecting to do so themselves. I for one will contribute to the charity of my choice myself without using some noncontributing corporation as a middleman. I don't need any prompting from some commercial profit making enterprise, thank you.

If you do want to donate at the check out line, make sure that your sales receipt shows the amount. That's the only way you will be able to use it as a deduction at tax time. The least they could do after tracking each transaction with their "points" program is to provide you with a year end print out of all the charitable donations you've made. But I guess that is asking too much. It might knock a few dollars off of corporate profits for them to do that.

June 18, 2015

Some guys just can't resist the temptation to score an extra couple of hundred thousand bucks by using their position inside a company such as Qualcomm and the information they are privileged to know in order to buy and sell stock before the public has access to that information. Such a guy was Derek Montague Cohen who knew about Qualcomm's plans to buy Atheros Communications in 2011.

He knew that Atheros' stock value would go up after it was publicly announced that Qualcomm would buy them. So he bought Atheros stock before it was announced publicly and before the stock price went up. After the announcement and the resultant surge in Atheros' stock value, he sold the stock making a tidy $200,000 profit. But he was not the only one. Several other Qualcomm employees did the same thing. Now Cohen faces jail time, something that rarely happens in white collar crimes.

Cohen's lawyer argued that he shouldn't have to serve jail time because of his age, health problems and the lifestyle he's become accustomed to. He said, "It's a terrifying prospect for him to face prison at this point in his life." As Jay Leno would say, "Ahut. Ahut. Ahut." Poor baby. If you don't want to serve the time, don't commit the crime.

But Cohen, age 52, should thank his lucky stars that he lives in the good old US where white collar criminals are usually just given a slap on the wrist. In China they are routinely executed for less. Take the case of Zhou Yongkang, age 72, who was found guilty of accepting $118,000 in bribes. He was sentenced June 11 to life in prison. And Cohen's lawyer will still probably get him off after appeals and other legal machinations. Let's face it - America does not like to jail its white collar criminals. Look at all the bankers who have been found guilty of fraud, bid rigging and everything else; yet not a one of them has spent any time in jail.

In most of these cases the insider(s) get away with it. Who's tracking this kind of thing anyway? Cohen and the other blokes were just unlucky, that's all. Of course if they didn't think they were going to get away with it, they never would have done it which is the rationale for most crimes. On May 29, U.S. district Judge Janis Sammartino sentenced Cohen to six months in prison and 1000 hours of community service.

Cohen spent about $430,000 on stock and call options. U.S. Attorney Eric Beste took a dim view of Cohen's dealings. "This is a crime of opportunity being committed by people of education and experience, and there's a significant amount of discretion. These people choose to cheat, and they can be deterred."

As it turns out, Cohen was ratted out by another Qualcomm exec who also had his hand in the cookie jar. Robert Herman, who worked as a regional sales director in San Diego, pled guilty to insider trading in July and was sentenced to a $50,000 fine, 1,500 hours of community service and three years probation. He got out of jail time by cooperating with authorities, i.e. he ratted out Cohen. After getting a call from Cohen, Herman bought about $148,600 of stock in Atheros. Later that day, after the news went public, Herman sold the stock and made a $29,000 profit. Cohen, who had earlier pled not guilty, was the fifth person to admit guilt in connection with the deal, according to court records. Among the other members of this motley crew was Michael Fleischli who pled guilty to netting about $3,000, prosecutors said.

Insider trading is similar to front running in which a trader has knowledge that a stock will probably go up or down. Then he can buy or short the stock depending on circumstances before the surge or drop happens making a quick profit once the stock pops or dips. In this business advance knowledge of any trend can be used to make a profit. And that's how most hedge funds make their money. If you don't have access to special knowledge in this business, chances are you'll be left behind or left out.

But wait there's more. Two San Diego stockbrokers, Chad E Wiegand and Akis Eracleous, pled guilty to insider trading on June 9. The guy supplying the info was Michael J Fefferman who was a high ranking executive with Ardea Biosciences, a San Diego biotech company. He tipped off the other two that Ardea was going to be purchased by AstraZeneca in 2012. With that information in hand the two stockbrokers bought a ton of Ardea stock. When the public announcement of the merger was made, shares of Ardea stock shot up 51% in one day. They then made a tidy profit selling the stock they had just purchased at a much higher price. These guys also make money by knowing in advance of public announcement that certain clinical trials went off rather well or were a total dud. In any event it's information in advance of what the average Joe Schlub has access to that makes these guys their money, and only a few ever get caught.

The Yin and Yang of Insider Trading

In Chinese philosophy, yin and yang describes how apparently opposite or contrary forces are actually complementary. Theses forces seem to be at work at Qualcomm Corporation where criminal activity and a stellar reputation as San Diego's largest employer seemingly go hand in hand. From a philosophical perspective these seem to be the contrary forces that are actually complementary.

Jing Wang, a former executive vice president and president of Qualcomm’s global operations, pled guilty to insider trading and money laundering in July, admitting that he made $240,000 from trading Atheros stock through a secret brokerage account. His stockbroker, former Merrill Lynch vice president Gary Yin, pled guilty to money laundering. Wang’s brother, Bing Wang, is also charged but believed to be at large in China. Good thing they didn't pull this stuff in China or they would be looking at life imprisonment at the very least along with their countryman, Zhou Yongkang, but more probably they would be executed. Unlike the good ole US, China has no qualms at all about executing white collar criminals. Bet Qualcomm rues the day when it hired the Bing and Jing show.

So San Diego, America's Finest City, with America's Finest Corporations, turns out to have America's Finest White Collar Criminals. It's the Yin and Yang of business - the grimy underbelly complements the gee whiz image. What else is new?

Just before the President spoke, Nike announced that if the Trans Pacific Partnership is enacted, Nike would “accelerate development of new advanced manufacturing methods and a domestic supply chain to support U.S. based manufacturing,” thereby creating as many as 10,000 more American jobs.

But that would still be only a tiny fraction of Nike’s global workforce. While Nike makes some shoe components in the United States, it hasn’t assembled shoes here since 1984.

In other words, Nike is a global corporation with no particular loyalty or connection to the United States. Its loyalty is to its global shareholders.

I’m not faulting Nike. Nike is only playing by the rules.

I’m faulting the rules.

In case you hadn’t noticed, America has a huge and growing problem of inequality. Most Americans are earning no more than the typical American earned thirty years ago, adjusted for inflation – even though the U.S. economy is almost twice as large as it was then.

Since then, almost all the economic gains have gone to the top.

The President is angry at Democrats who won’t support this trade deal.

He should be angry at Republicans who haven’t supported American workers. Their obduracy has worsened the potential impact of the deal.

Congressional Republicans have refused to raise the minimum wage (whose inflation-adjusted value is now almost 25 percent lower than it was in 1968), expand unemployment benefits, invest in job training, enlarge the Earned Income Tax Credit, improve the nation’s infrastructure, or expand access to public higher education.

They’ve embraced budget austerity that has slowed job and wage growth. And they’ve continued to push “trickle-down” economics – keeping tax rates low for America’s richest, protecting their tax loopholes, and fighting off any attempt to raise taxes on wealthy inheritances to their level before 2000.

Now they – and the President – want a huge trade agreement that protects corporate investors but will lead to even more off-shoring of low-skilled American jobs.

The Trans Pacific Trade Partnership’s investor protections will make it safer for firms to relocate abroad – the Cato Institute describes such protections as “lowering the risk premium” on offshoring – thereby reducing corporate incentives to keep jobs in America and upgrade the skills of Americans.

Those same investor protections will allow global corporations to sue the United States or any other country that raises its health, safety, environmental, or labor standards, for any lost profits due to those standards.

But there’s nothing in the deal to protect the incomes of Americans.

We know that when Americans displaced from manufacturing jobs join the glut of Americans competing for jobs that can’t be replaced by lower-wage workers abroad – personal service jobs in retail, restaurant, hotel, hospital, child care, and elder care – all lower-skilled workers face downward pressure on wages.

Without a higher minimum wage, an expanded Earned Income Tax Credit, affordable higher education, and a world-class system of job retraining – financed by higher taxes on the wealthy winners in the American economy – most Americans will continue to experience stagnant or declining wages.

Instead, the Trans Pacific Partnership – which includes twelve nations, including Vietnam, but would be open for every nation to join – would lock us into an expanded version of the very policies that have failed most American for the past twenty years.

No doubt Nike is supporting the TPP. It would allow Nike to import its Vietnamese and Malaysian-made goods more cheaply. But don’t expect those savings to translate into lower prices for American consumers. As it is, Nike spends less than $10 for every pair of $100-plus shoes it sells in the U.S.

Needless to say, the TPP wouldn’t require Nike to pay its Vietnamese workers more. Nikes’ workers are not paid enough to buy the shoes they make much less buy U.S. exported goods.

Nike may be the perfect example of life under TPP, but that is not a future many Americans would choose.

The richest nation in the world should enable its workers to be good parents. Family-friendly work isn’t a luxury. People who work hard deserve to make more than a decent living. They and their families deserve a decent life.

MAKING THE ECONONY WORK FOR THE MANY, NOT THE FEW. STEP #1: RAISE THE MINIMUM WAGE

A basic moral principle that most Americans agree on is no one who works full time should be in poverty, nor should their family.

Yet over time we’ve seen significant growth in the “working poor” – people working full time, sometimes even 60 or more hours each week, but at such low wages that they remain impoverished.

What to do?

One step is to raise the minimum wage to $15 an hour. This is winnable. A powerful movement is fighting for $15 an hour and they’re winning new laws in cities and states, and forcing companies to raise wages.

If the minimum wage in 1968 had simply kept up with inflation it would be more than $10 today. If it also kept up with the added productivity of American workers since then, it would be more than $21 an hour.

Wrong. Half are 35 or older, and many are key breadwinners for their families.

And don’t believe scaremongers who say a $15 minimum will cause employers to cut employment.

More money in people’s pockets means more demand for goods and services, which means more jobs not fewer jobs.

Studies also show that when the minimum is raised more people are brought into the pool of potential employees, giving employers more choice of whom to hire. This reduces turnover and helps employers save money.

Finally, employers who don’t pay enough to lift their employees out of poverty are indirectly subsidized by the rest of us – who are paying billions each year in food stamps, Medicaid, housing assistance, and welfare, to make up the difference.

The minimum wage should be raised to $15 an hour. It’s the least that a decent society should require.

May 06, 2015

Qualcomm has been fined almost a billion dollars by China for violating its antimonopoly law. China has the world's most internet users and the largest smartphone market so Qualcomm has to tread gingerly with the authorities there since it doesn't want to be booted out of the world's most lucrative market. The fine will knock 58 cents a share off Qualcomm’s earnings for the year. Qualcomm CEO Steven M. Mollenkopf thinks paying the fine will make Qualcomm better positioned to cash in in the future.

This could be another front in the brewing economic conflicts between China and the US. To sweeten the pot Qualcomm has offered China deep discounts on licensing its patents for certain systems and agreed to partner with Chinese companies. But all this could be construed as a bribe in order to get access to the Chinese market.

Since half of Qualcomm’s revenue comes from China, there is a need to be China's "friend" as Chinese internet czar, Lu Wei, pointed out. And that doesn't just mean on Facebook. China has considerable leverage over Qualcomm and a host of other American corporations who are all eager to make money in China. China knows this and is flexing its muscles in an apparent show of economic nationalism.

Although regulation is a bad word in the US, not so in China. China's regulator is the National Development and Reform Commission aka the N.D.R.C. It is getting more aggressive in giving out fines. This could correspond to China's push to develop its own chip market so it won't have to import them from companies like Qualcomm. Since Qualcomm makes most of its money from licensing its patents, the future looks ominous for the San Diego chipmaker. China hasn't always shown the greatest respect for foreign patent holders, and will probably have many patent workarounds up its sleeve.

The Qualcomm Drama: Rich People Fighting Other Rich People Over Who Gets a Bigger Slice of the Money Pie

By now it's conventional wisdom that the ratio between CEO pay and the pay of the average worker has reached astronomical proportions. Huffington Post reports:

The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.

“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” Roger Martin, dean of the University of Toronto’s Rotman School of Management, told Bloomberg.

Scrapping like hyenas for every morsel aptly describes the plight of Qualcomm management and Qualcomm shareholders. In an earlier article I wrote about how retiring CEO Paul Jacobs gave his employees a homework assignment last March: go home and tell your wife and family to tell Congress to give Qualcomm a tax break. It seems that Qualcomm has a lot of money parked offshore which should be obvious since they do most of their business in China. Before they can "repatriate" that money, they have to pay taxes to the US government on it so they lobby Congress for a tax break in order to bring it home tax free or almost tax free.

The so-called tax holiday has been tried once before with CEOs promising to use the money to build new plants and create new jobs in the good ole US of A. It never happened. Instead CEOs used the money to buy back their own stock thereby raising its price. The idea is that this benefits shareholders who can then sell their stock at a higher price and cash in.

However, a new wrinkle has emerged in the stock buyback business. Instead of it raising the price so shareholders can cash in, Qualcomm has figured out a way to raise the price so CEOs can cash in and leave shareholders grasping for thin air. The U-T reported "Instead of duly enriching the shareholders who own Qualcomm, its executives have leveraged dominance of the world’s smartphone technology to enrich themselves."

As the price of Qualcomm's stock went up, the hyenas - meaning outgoing CEO Paul Jacobs and incoming CEO Steven Mollenkopf - figured out a way to channel the increased largesse not into shareholder profit but into executive pay for themselves. Investors holding large blocks of Qualcomm stock like Jana Partners were not amused.

As overall executive compensation jumped 180 percent last year, Qualcomm gave special stock grants worth $95 million to just two executives. Paul Jacobs, the co-founder’s son who gave up the CEO job way back in March 2014, got $45 million that vests over five years.

The new CEO, Steve Mollenkopf, received a staggering $50 million over five years. President Derek Aberle received grants worth $26.6 million.

Jana Partners, a hedge fund, was founded in 2001 by Barry Rosenstein. Jana, which manages more than $11 billion, is known for buying stakes in companies and then seeking to work with management as it pushes for change. In other words they are a thorn in Qualcomm's side. They've been pushing to break up Qualcomm into two companies - one being the chip making operation and the other being the patent licensing part.

So Paul Jacobs, failing in his quest for a tax holiday, nevertheless, creatively figured out a way to make $45 million for himself while stiffing Qualcomm shareholders. This was all done by means of stock grants. Qualcomm can grant its executives as many stock shares as it wants to. This means that there are more outstanding shares of stock which dilutes the price per share. So Qualcomm's trick was to buy back some of its stock thereby decreasing the number of outstanding shares and increasing the price per share, and then to turn around and grant stock to those three executives so that the final result was that the exact same number of shares, more or less, were outstanding as there were before this maneuver took place.

The U-T opined "Instead of using buybacks to give owners more of the company over time, Jacobs has effectively recycled shareholder profits into executive pay."

So three hyenas in the form of Jacobs, Mollenkopf and Aberle swiped the money off the table before another hyena in the form of Jana Partners could get to it. Had Jana Partners been successful and gotten to the money first, its rich shareholders could have reaped the profits instead of Qualcomm executives and CEO pay would have decreased. Getting back to the obscene ratio between CEO pay and worker pay, in neither case would workers have benefited even if in this instance CEO pay had diminished. The benefits would have gone to another set of rich hyenas, Jana Partners.

Ironically, workers have no leverage in this scenario whatsoever. Even if executive pay decreases, the only likely beneficiaries are other rich people - shareholders - not workers.

Last week Qualcomm cut its earnings forecast for the second time this year after reporting that its past quarter’s earnings dropped 45 percent from the prior year. Samsung is not going to use its Snapdragon chip this year, but Qualcomm is optimistic. Samsung has invited them to produce their next chip in Samsung's own factory. Like a moth to a flame, Qualcomm will let Samsung oversee its chip making operation. I wonder what could go wrong with that? As other companies rev up their own chip making operations, Qualcomm will not only lose the chip business, but its patents, from which it gets most of its income, will be rendered worthless as Samsung and others devise workarounds to Snapdragon.

China is also revving up its chip making operations which will result in less of a need for Qualcomm's Snapdragons. They are afraid Qualcomm has built in a "back door" which would allow the US to spy on Chinese officials. Maybe Paul Jacobs got out just in time.

February 03, 2015

Apple Corporation is sitting on $178 billion in cash, and it literally doesn't know what to do with it. But it knows one thing: it doesn't want to give any of it to Uncle Sam or any other taxing jurisdictions around the world. That much is clear. If it divided that money up, Apple could give $550 to every man, woman and child in the US. It's enough money to buy Ford, General Motors and Tesla combined and still have $41 billion left over. They could even buy a couple of small countries, but it doesn't want to do that. Why bother? It's literally an embarrassment of riches.

Apple sold an amazing 74.5 million iPhones in the last quarter of 2014, (the first fiscal quarter of 2015). This was an average of 34,000 iPhones an hour for every hour of the quarter! It brought in over $74 billion in revenue for the quarter. This was higher in quarterly revenue than Microsoft and Google combined, the largest quarterly revenue ever to be recorded by a publicly traded company. Profits for the quarter were over a quarter billion dollars a day.

Investors, the supposed "owners" of the company, want that money given back to them, but it's not happening. They could give all their employees a raise, but that's not happening either. They could buy back their stock thus raising the price of it, and they have done some of that. The problem is most of that $178 billion is sitting outside the country, so rather than "repatriate" the money which would cost them a hefty amount of taxes, they borrow money instead to do their meager stock buy backs in order to get investors off their backs, AND they lobby Congress for a "tax holiday" which would let them bring the money home without paying tax on it.

They could reduce the prices on their iPhones, or build a factory and set up a production line in the US. This would create American production jobs instead of all those kind of jobs being created in China. Of course, it would cut into their profit margins slightly so it is out of the question. Besides you can't wake up American workers at one o'clock in the morning and put them on the production line for 12 hours like their production company in China, Foxconn, does on Apple's behalf.

Apple is in business to make money even if they have no other use for it than to sit atop a shitpile of it. This kind of massive anal-retentiveness which hoards money rather than utilizing it for life sustaining and enriching purposes amounts to the worship of "filthy lucre." Norman O Brown, author of the book, Life Against Death, has said, "... money is seen to be nothing other than deodorized, dehydrated shit that has been made to shine." Meanwhile, millions of homeless people around the world go hungry.

With so much money at their disposal that they don't know what to do with, the question is begged, "Why not pay the taxes on it and help out their fellow Americans and their country?" But that's not the way corporations work. They assiduously seek out every possible tax break their lawyers can dream up. When asked why this is necessary, given that they don't even need the money, CEO Tim Cook replies words to the effect that paying taxes on this money would give his competitors an unfair advantage.

Well, it might do that if it meant that Apple would not be able to invest in new plants or equipment, but that is surely not the case. Apple is lacking for absolutely nothing so it is hogwash that not spending or giving back money it doesn't need is putting them at a disadvantage with respect to their competitors. In fact it is building a new headquarters in Cupertino, CA that will cost $5 billion and feature 40-foot panes of curved glass from Germany that will form the exterior. They plan to move in in 2016. It is nothing less than an over the top display of ostentatious wealth and conspicuous consumption.

In the fourth quarter of 2014 Apple made $18 billion in profits, the most money an American corporation has ever made in one quarter. By comparison Exxon corporation made slightly more than half of that - $9.45 billion; Chevron made $7.25 billion. Campbell Soup Corporation, which has been a fixture in American households for over 100 years, made a paltry in comparison $8.3 billion in total revenues in 2014 and out of that only $800 million in profits for the whole year. That figures out to be a profit margin of 9.6%. Apple's quarterly profits were 22.5 times bigger than Campbell Soup's yearly profits. For Apple’s full fiscal year of 2014, profit was $39.5 billion on revenue of $182.8 billion.

Most of this came from the tremendous sales of the iPhone 6. In a conference call with financial analysts, CEO Tim Cook, said that demand for iPhones was "staggering". For every iPhone Apple sells, it makes a phenomenal 40% in profit. That's an impressive profit margin. But lowering prices or creating American jobs which would entail accepting a more modest profit margin is not in Apple's DNA or for that matter in any other red blooded American corporation's DNA.

Apple goes to elaborate lengths to avoid not only Federal taxes but California state taxes as well. Most of its intellectual work is done in California, but for accounting purposes it has moved much of its financial operations to a subsidiary in Nevada called Braeburn Capital where there is a zero tax rate. With a small number of employees in Reno, Apple has avoided millions of dollars in taxes in California and 20 other states. California's tax rate is 8.84% while Nevada's is zero. By having an office 200 miles east of its Cupertino, California headquarters to collect and invest its profits, Apple avoids millions of dollars in California taxes.

Apple also saves billions by setting up offices in low tax jurisdictions throughout the world such as Ireland and the Netherlands. Apple implemented an accounting technique known as the "Double Irish With a Dutch Sandwich," which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Apple's creativity and innovativeness in avoiding taxes has been replicated by other corporations which have gone to great lengths to avoid taxes too. They look up to Apple as their teacher in tax avoidance.

If it weren't for such tactics, Uncle Sam would have collected about $2.5 billion more from Apple last year. This means that average Joes, who do not have the benefits of overseas low tax jurisdictions and an army of accountants and lawyers to help them figure their taxes, have to make up the difference. Last year Apple paid a tax rate of less than 10% considering taxes paid around the world. By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

De Anza College is located a mile and a half from Apple's Cupertino headquarters. It is struggling to keep its head above water:

[De Anza is] a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

You'd think that Apple would take De Anza under its wing and keep it alive with some of that pile of cash it's sitting on. But there is an additional complication: most of that $178 billion shitpile is sitting in overseas banks. Having paid little in taxes on it so far, Apple is reluctant to bring it back to the good ole US because by so doing it would have to pay the US corporate rate of 30% minus whatever taxes it has already paid. With so much money at its disposal, going ahead and paying US taxes on it is merely the right thing to do. Then it could turn around and help out De Anza College.

But these guys could care less. It's a point of pride to pay as little in taxes as possible no matter what hoops it has to jump through in order to do it including even the Double Irish and Dutch Sandwich. It could help out De Anza with a portion of the money it has made by locating Braeburn Capital in Nevada. If Braeburn were located in Cupertino, where Apple’s top executives work, a portion of the $2.5 billion in interest and dividend income that has been processed by Braeburn would be taxed at California’s 8.84 percent corporate income tax rate instead of Nevada's zero percent rate.

Braeburn is only one method that Apple uses to avoid taxes. Every time someone downloads a song from iTunes, Apple avoids paying taxes on the profit from that download. Since it costs no more to download the same tune one time or a million times, those profits are pretty high. So the clever people at Apple, who can locate the server from which iTunes songs are downloaded, anywhere in the world, have decided to locate it in Luxembourg where they pay no taxes on the profits.

“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.” Consequently, tax payments are denied to Britain, France and other countries as long as everything is routed through Luxembourg.

About 70% of Apple's profits are earned abroad while only 30% are earned in the US, and that's by design in order to escape paying US corporate taxes. But all of the design and the intellectual heavy lifting is done in the US. Former Treasury Department economist, Martin A. Sullivan said that “given that all of the marketing and products are designed here, and the patents were created in California, that [percentage of profits earned in the US] should probably be at least 50 percent.”

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Mr. Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Other tax experts, like Edward D. Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, have reached similar conclusions. “This tax avoidance strategy used by Apple and other multinationals doesn’t just minimize the companies’ U.S. taxes,” said Mr. Kleinbard, now a professor of tax law at the University of Southern California. “It’s German tax and French tax and tax in the U.K. and elsewhere.”

Suffice it to say that Apple has not yet found a viable strategy for investing its $178 billion shitpile of cash whether in terms of building new plants, paying more taxes or in doing good deeds in the US or elsewhere in the world. Whether or not its gargantuan profits are considered obscene, I leave to the eyes of the beholder. One thing is for sure though: Apple's 1984 Superbowl commercial, in which IBM was dramatized as taking over the world, is now more aptly interpreted with Apple in the role of IBM. In the same quarter in which Apple posted $18 billion in profits, IBM's total revenue fell nearly 12 percent to $24.11 billion. Revenue from hardware fell 39 percent to $2.41 billion. IBM's revenues may have declined for 11 consecutive quarters and its stock price has fallen, but its CEO, Virginia Rometty, is taking home a performance bonus of $3.5 million. Oh how the mighty have fallen!

September 20, 2014

Corporations are relentless about setting up tax avoidance schemes and finding new and improved ways of getting out of paying taxes. One method is to set up a corporate subsidiary in the Cayman Islands which doesn't require any taxes to be paid. This works well for collecting royalties on patents because the patents can just be transferred to the subsidiary, and, voila, no taxes need be paid at all. Other companies which do a great deal of selling abroad have money piling up in foreign jurisdictions. US law requires them to pay taxes on this money when they bring it back into the US. So these companies like Microsoft, Apple and Qualcomm are always lobbying for a "tax holiday", which would allow them to bring this poor, lonely money home without paying taxes on it. Corporations are people, remember, and money is their Mother's Milk.

Other industries like fast food operations make most of their money in the US. They have been stumped until recently as to how to get out of paying taxes on it. But now they have discovered an ingenious new way. The latest wrinkle is called inversion. A US corporation merges with a corporation in a foreign country and then for tax purposes lets its headquarters be located there. Nothing changes as far as US operations are concerned. Executives continue living in the US and US operations continue as usual. The corporation pays taxes to the foreign government which has a lower tax rate while leaving the US high and dry. Such a scam is being perpetrated by Burger King which is merging with a Canadian corporation called Tim Hortons. Burger King will cut its tax obligations in the US, pay a reduced tax bill to Canada and continue in the US with business as usual. No physical change of headquarters is necessary. No executives need move to Canada. As an added bonus, money made in Canada doesn't require begging for a tax holiday. It moves freely here with no strings attached.

Congress could eliminate the tax loophole which makes this possible, but Congress is in the business of creating loopholes not eliminating them. They are all for expanding loopholes instead of contracting them. Actually, Congress is the "Loopholes R Us" guys. Expect even more not fewer loopholes in the future.

Dick Durbin, Democrat from Illinois, blasted the deal. He said he was disappointed in Burger King's decision to renounce its US citizenship. They have effectively renounced their US citizenship for the purposes of paying taxes but not for the purposes of making profits. And Wall Street demands that they and all corporations maximize profits. Else they will be downrated and their stock might lose value. One of the chief ways they maximize profits is to minimize taxes. So Wall Street, who is their Big Daddy, cheers when corporations get out of paying taxes, and corporations dutifully listen to their Big Daddy and do what he says. Or else they'll be taken to the woodshed of lower stock values and sell orders. Investors will not be pleased.

Inversions let companies which earn money outside the US transfer money to the US without paying additional monies to the US. No need for a tax holiday. So don't be too surprised if Qualcomm or Apple decides to merge with a company in southeast Asia which would allow it to bring all the money, that has been sitting there waiting for a tax holiday, back to the US without further ado and with no additional taxes. So for money generated in the US, taxes are paid to the foreign government and for money generated outside the US that money gets to come home tax free. More and more companies are going to ditch Uncle Sam, and companies that are thought to be quintessentially American are going to be unAmerican when it comes to paying taxes. This means a greater tax burden on the middle class or perhaps it means that the Fed will just print more money. Inversions could cost the US $20 billion in lost tax revenues over the next decade.

In the last two decades more than 75 American companies have moved their official addresses abroad. The consulting firm Price Waterhouse Coopers moved its corporate address to Bermuda in 2002. Underwear manufacturer Fruit of the Loom moved its corporate address to the Cayman Islands in 1998. Sara Lee merged in 2012 with DE Master Blenders which has corporate headquarters in the Netherlands. Chiquita Bananas and medical device manufacturer Medtronic will both move their corporate headquarters to Ireland this year which brings up an interesting anomaly. Will the US government continue to pay millions in Medicare and Medicaid money to a corporation which in return pays taxes to a foreign government?

Bugger King says that Tim Hortons offers a real good business synergy since Tim Hortons is breakfast oriented while Bigger King specializes in lunch and dinner, but that's no reason why the corporate structure needs to be such that Buegher king is the subsidiary of Tim Horton. Bugger King is making itself subservient to Tim Horton to get out of paying US taxes pure and simple. The US loss is Canada's gain. Wow, Canada has free health care and what used to be US tax revenues. What's wrong with this picture?

The US stands alone among major nations in taxing on a residence basis instead of letting taxes be collected where the money is made. If your corporate headquarters are in the US, then you must pay corporate taxes on all the money you earn anywhere in the world to the US. Tim Hortons is resident in Canada so it pays taxes in whatever jurisdictions its money is earned. If they make money, for instance, in Britain, they pay taxes on that money to Britain not to Canada. So it's not just the fact that the US corporate tax rate is higher than Canada's. It's the fact that other modern industrialized nations pay taxes in whatever jurisdictions they operate in to those jurisdictions while US based companies pay taxes to the US wherever they make money anywhere in the world.

Burgher King is not the first corporation to pull this stunt. Walgreen's, the largest US drugstore chain, thought about it too. While pondering the move, Walgreens came under pressure from Democratic lawmakers and activists to remain headquartered in the United States. Senator Dick Durbin of Illinois, took a shot at Walgreens' folksy motto, writing, "Is 'the corner of happy and healthy' somewhere in the Swiss Alps?" Such a move might have cost U.S. taxpayers $4 billion over five years. There were calls for a national boycott. After announcing that it would not locate its corporate headquarters in Switzerland, Walgreen's stock went down. Shareholders were not amused that Walgreen's was giving money away by not locating there.

Walgreen isn’t the only one. Pfizer, the pharmaceutical company, tried merging with the smaller U.K.-based AstraZeneca earlier this year and switch its address, where the tax rate is lower. It was estimated the move would save them at least $1 billion a year in tax obligations to the U.S. (the deal ultimately didn’t go through). Medtronic, a medical device company, plans to move its corporate address to Ireland, a tax haven, to avoid paying U.S. taxes on $14 billion. Chiquita, the banana distributor, is also heading to Ireland after acquiring Fyffes. These tax dodges, as Fortune magazine calls them in this week’s issue, are “positively un-American.”

In May, Senate Democrats introduced the Stop Corporate Inversions Act of 2014, which recommends, among other things, forcing a large portion of a merged company's management and workforce to relocate to the new overseas location if the company wants to dodge U.S. taxes.

The bill "allows corporations to renounce their corporate citizenship only if they truly give up control of their company to a foreign corporation and truly move their operations overseas," Massachusetts Sen. Elizabeth Warren, who backed the bill, said last month.

Congress has the power to solve this problem. They merely need to change the rules so that the level of foreign partnership changes from the current 20% to 50% which would effectively make the corporation a foreign owned entity. But since our American method of governance is by corporate lobbyists, Congress will do the right thing only if it benefits corporations and right now that would be the status quo which allows corporations to do most of their business in and extract most of their propfits from the US while paying taxes to a foreign government.

President Obama and other Democrats have proposed that any corporation moving its headquarters abroad to avoid paying taxes should not receive any government contracts. "They're technically renouncing their U.S. citizenship," Obama said of the companies. "They're declaring they are based someplace else even though most of their operations are here. You know, some people are calling these companies corporate deserters." But Democrats do not control Congress so anything they want to do is moot. The American way of governance is ineffectual and dysfunctional as long as corporate interests supersede the interests of citizens and taxpayers. That is why a parliamentary democracy would better serve the US citizenry. In that form of government the winning party can get its agenda accomplished with far less interference from other parties.

September 04, 2014

San Diego's Mayor Kevin Faulconer recently signed a deal with Illumina Corporation that was supposedly designed to keep the corporation from jumping ship and landing in another state or jurisdiction. The City of San Diego agreed to rebate $1.5 million in sales and use taxes. In return Illumina promised to keep a number of jobs in San Diego for the term of the agreement. With revenue of just over $1 billion last year, Illumina sells machines that sequence the human genome. The company leases 6 buildings in San Diego totaling over 560,000 sq. ft. and currently has 1500 employees.

Illumina likes to brag about itself as being the "Apple of the genomics industry." It wrote to its shareholders in 2012:

“Illumina is like the Apple of the genomics business. Tools made by the San Diego company are revered by genomics researchers around the world just like millions of consumers love their iPhones and iPads. And Illumina holds its dominant position at an enviable moment in history, as we’re heading into a scientific golden age when human genomes will be sequenced for $1,000 or less.” – Xconomy reporter Luke Timmerman, March 6, 2012

MIT has called it the "World’s Smartest Company" ahead of Tesla Motors, Google and Samsung.

But the deal the City has entered into with Illumina is fishy on several levels. For starters in 2007 GenomeWeb News reported that Illumina signed a fifteen year lease for a new 84,000-square-foot facility currently under construction in San Diego that will enable it to expand its laboratory and office workforce. BioMed Realty Trust, a real estate investment company focused on the life sciences industries, said the new facility will expand an existing 110,000-square-foot facility that Illumina leases at the University Towne Center. Furthermore, Illumina said it had added a 15-year extension to the lease on the existing property. The new facility will allow for the creation of as many as 1,200 new jobs in the San Diego area, according to BioMed.

A fifteen year lease on new and existing buildings signed in 2007? The lease will be up in 2022. It doesn't sound like Illumina has plans to abandon San Diego any time soon. Meanwhile, the Mayor signs a ten year deal that would keep Illumina here till 2024. So for $1.5 million the City gets two more years of Illumina's commitment to San Diego. But wait there's more. The ten year deal is not really a ten year deal. Sound fishy? Read on.

And then there's the shady reports about Illumina being lured away by Memphis, Tennesee or Poway. Poway?? Good God, does the City of San Diego really have to spend $1.5 million to prevent a company from moving to Poway? For those of you who don't know, Poway is located next door to San Diego in San Diego County. It's part of the San Diego Greater Metropolitan area, for Pete's sake. And those mysterious rumors of a move to Memphis. Problem is sources in Memphis don't know anything about it.

Media reports on the "historic" deal—as Council President Todd Gloria described it—suggested that the cities most aggressively seeking favor with Illumina's allure were Poway and Memphis.

This was news to some pretty smart folks in Poway and Memphis.

"That really surprises me, because we've never been in contact with the company," Poway Mayor Don Higginson told Spin. "I checked with our economic-development director, and he said we were never approached by them."

Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corp.— a key organizational player in reaching the Illumina agreement — suggested that Memphis was the big player here in luring Illumina away. Au contraire, said Reid Dulberger, head of economic development for the Memphis area. He'd never heard of such a thing. Asked if the offer suggested by Mark Cafferty was in the ballpark, he replied, "There is no ballpark."

Similarly, representatives of the Memphis Chamber of Commerce and Mayor's office knew nothing about any courtship involving Illumina. It seems like this courtship of Illumina by outside jurisdictions was a fig newton of Mark Cafferty's imagination. After all a CEO of an Economic Development Corporation has to do something to earn his pay. Why not gin up a $1.5 million tax giveaway to some leading corporation which by the way Illumina doesn't really need. They are quite profitable thank you very much.

Local news NBC 7 San Diego reported that "the deal" was announced on July 15, 2014: "Under the 10-year agreement, Illumina will keep 300 middle-class manufacturing jobs in San Diego and receive a tax break up to $1.5 million." First of all the "10-year agreement" implies that those 300 middle class jobs will stay in San Diego for 10 years. Not true. Under terms of the agreement the deal could end much sooner if certain conditions are met. But remember that figure "300 middle class jobs." As we shall show, that is a blatant untruth and misrepresentation of the facts.

Illumina has 1500 employees in San Diego. So retaining 300 middle class jobs is a pittance at best compared to its total San Diego employment. And then remember those 1200 additional jobs that Illumina's expansion at University Towne Center, for which they signed a 15 year lease, allowed for the creation of? That's 2700 jobs in San Diego at present and in the near future, but the Mayor gave away $1.5 million of taxpayers' money to retain a paltry 11% of those jobs. And as we shall show, it's even less than 11%. Esau sold his birthright for a mess of pottage, but Faulconer sold out the taxpayers for a mess of BS.

And then there's the tax rebate deal itself. When scrutinized in the harsh light of day, it has aspects which haven't been made apparent in reports the media has made to the general public. First of all it's not a $1.5 million deal. It's a $1.5 million deal with interest. Witness this exchange on KPBS:

MAUREEN CAVANAUGH: That is up to $1.5 million, is that right?

ALMIS UDRYS: That is correct, $1.5 million with interest as well, over the time while they are claiming the rebate, interest would be accrued as well. In the end it would be over $1.5 million.

So the "tax break up to $1.5 million." Not true either. Illumina will get $1.5 million plus 3% interest, and the payout will be in one lump sum which maximizes the interest.

By the way Almis Udrys also noted that this is the third incentive deal that the city has signed off on this year: "Two of them were craft breweries, Ale Smith and Ballast Point, earlier in the year..."

And then there's the matter of how the $1.5 million is rebated to Illumina. It is rebated out of taxes that Illumina expects to pay in the future above and beyond what they are paying now plus 30%. Illumina is expected to grow, have more sales, pay more sales tax and have even more employees than it has now. So they would go on paying the amount of taxes they paid last year (the benchmark year) plus 30%. Any sales tax above that would be rebated once the $1.5 million is reached. A fine detail is that the 30% only applies to sales tax; use tax rebates would be 100% above those paid in the benchmark year.

So last year Illumina paid about $1.3 million in taxes. Since the rebate amount must sit in city coffers until it totals $1.5 million to be paid out in one lump sum, it will accrue interest until Illumina decides to ask the city for a check. When the full $1.5 million has been received by Illumina (plus interest) or 10 years has elapsed, the deal will be terminated. That means that, if Illumina's sales skyrocket, those 300 jobs it promised to keep in San Diego could evaporate in just a few years not the 10 years the media has reported. And since Illumina is heading into a "scientific golden age" for human genome sequencing, they do expect their sales to skyrocket.

Illumina is adding 1200 jobs almost doubling its workforce. Therefore, it is a reasonable guesstimate that it expects to double its sales. Doubling its sales doubles its sales tax. So next year or the year thereafter Illumina could be paying $2.6 million in taxes which would put it at or near the $1.5 million rebate level. The point is that in just a couple years Illumina could have satisfied conditions for the rebate, taken the $1.5 million and left town except for the fact of those 15 year leases. Oh well, they could leave at least by 2022 so that the 10 year deal to save 300 jobs would be moot.

The rationale is that keeping Illumina here keeps the sales and use taxes coming at least at the present rate plus the employees that it keeps here pay sales tax and other taxes themselves and generate up to three ancillary jobs. Of course, Illumina could move about 90% of its employees to another state immediately. The deal with the city doesn't constrain them from doing that.

Moreover, Alan Gin noted in the same KPBS interview that this sort of tax giveaway "will then impact the level of services that can be provided, spent on infrastructure, and other things." That's $1.5 million plus that won't be spent on parks, libraries, schools, repairing potholes, replacing watermains and improving neighborhoods. Remember K-Faulc's mantra: “There is no such thing as a Democratic or Republican pothole.” Whoops, I guess those Democratic potholes won't get fixed after all.

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

City Council's Approval a Mere Afterthought

So did Illumina shake down the city and threaten to move elsewhere if they didn't get their spif? Not at all. The tax giveaway was initiated by Kevin Faulconer's team itself with a little help from the folks at San Diego Regional Economic Development Corp. which gave the mayor's office the heads up. It seems that the city undertook to shake itself down.

On July 21 the City Council took up the Economic Development Incentive Agreement (EDIA) with Illumina, Inc., to provide a sales and use tax rebate. On the Council Docket was the following item description:

Authorize the Mayor to enter into an Economic Development Incentive Agreement with Illumina, Inc., to provide a sales and use tax rebate to encourage this company to retain its manufacturing operations and its taxable product sales operations with the City of San Diego.

From an email inquiry to the members of the City Council, I received this reply from Councilmember Lorie Zapf's office:

Yes, the City Council approved the Illumina deal. It came before Council twice; the first time was on July 21, 2014 and all members were present. The second time was also unanimous on August 7, with Councilmembers Kersey and Emerald absent.

However, according to the docket, it was noted that this item was pursuant to Section 99 of the City Charter (10 day published notice, approval by Ordinance and 6 votes required). There was no mention that the item was voted on at all on July 21. And remember the Mayor had already signed the agreement on July 15!

NOTE: If some of the subsequent links generate a "File or Directory Not Found" message, click here and then scroll down and click on

Illumina would be obligated to retain all of its manufacturing jobs within the City, at any site of its choice, during the term of the EDIA. The term of the EDIA would be the lesser of 10 years or the year that Illumina has generated new additional (above the benchmark) sales and use tax revenues of $1.5 million.

This is interesting for two reasons: (1) Illumina is not required to maintain jobs in the City for ten years as reported in the media but for "the lesser of 10 years or the year that Illumina has generated new additional ... sales and use tax revenues of $1.5 million" and (2) Illumina would not be required to maintain 300 jobs in the City but "all of its manufacturing jobs within the City."

Under the item Community Participation and Public Outreach Efforts it was noted: "None - Confidential municipality-taxpayer negotiations" So the inner workings of the City in this regard are meant to be shrouded in secrecy.

Jay Flatley, CEO of Illumina, signed the Economic Development Incentive Agreement with the City on July 7 long before the City Council "approved" it. The agreement specified the following:

Job Creation and Retention. During the Term of this Agreement, Company shall (i) create or retain all manufacturing jobs existing in the City of San Diego as of the Execution Date; and (ii) make commercially reasonable efforts to create Sales Force jobs, or retain at least the same number of Sales Force Jobs, located in the City of San Diego as of the Execution Date.

The exact number of those manufacturing jobs is not mentioned nor is it specified what a "commercially reasonable effort" is. This would probably not hold water in a court of law.

On July 10, the following document was ready for Mayor Kevin's signature: "AN ORDINANCE OF THE COUNCIL OF THE CITY OF SAN DIEGO AUTHORIZING THE ECONOMIC DEVELOPMENT AGREEMENT WITH ILLUMINA, INC. AND APPROVING CERTAIN RELATED ACTIONS." approved by City Attorney Jan Goldsmith. This document contains a lot of legalese in the form of Whereas this and Whereas that followed by Therefore, Be It Ordained blah, blah, blah. However, one of the Whereases is particularly, well, illuminating:

"WHEREAS, Illumina is committing to create or retain over 100 middle-wage manufacturing job opportunities within San Diego, jobs which are likely to be filled by San Diego residents"

Wait a minute, the legal agreement specifies only 100 manufacturing jobs as opposed to the 300 manufacturing jobs widely reported by the media?! You mean to tell me that this $1.5 million rebate was created to retain 100 jobs in San Diego for what might turn out to be far less than the ten years reported in the media? And that's 100 jobs out of approximately 2700 jobs that Illumina expects shortly to have? Or approximately 1% of its jobs?

The City and its taxpayers have been hoodwinked.

On July 8 David Graham, Deputy Chief Operating Officer, Neighborhood Services, sent a Memorandum to City Council President Todd Gloria with a Direct Docketing Request which consisted of urging the City Council to go ahead and approve the Economic Development Incentive Agreement that Jay Flatley had already signed. It noted: "A proposal for an EDIA would normally be considered by the Council Committee on Economic Development and Intergovernmental Relations (ED&IR) prior to consideration by the full City Council." But Graham wanted it ramrodded through the City Council without further consideration because after all the details had already been worked out and it had already been signed by Flatley. It was awaiting Faulconer's signature as soon as the City Council complied.

The City Council did not give final approval to the Illumina deal until August 7 no doubt because of that Section 99 of the City Charter that required a 10 day waiting period. In any event the deal had already been done, and the City Council's "approval" was after the fact. Faulconer's deal with Illumina was a fait accompli.

Jumping the gun on the City Council's approval, on July 15 Mayor Kevin Faulconer put out a press release:

Agreement with Illumina Inc. will keep hundreds of high wage jobs in the city

San Diego, CA – Today Mayor Kevin L. Faulconer joined Illumina Inc. CEO Jay Flatley to announce an agreement that will keep the medical device company and its good-paying jobs in San Diego. Illumina was recently named "World’s Smartest Company" by the MIT Technology Review, ahead of Tesla Motors, Google and Samsung.

The City will provide a tax rebate in exchange for Illumina retaining approximately 300 middle-class manufacturing jobs in San Diego.

So did the City Council merely ratify a deal on August 7 that had already been consummated on July 15? And the retention of 300 middle-class manufacturing jobs? What about the 1500 other higher paying R&D and sales jobs that Illumina now provides and the 1200 new jobs it will add according to Biomed? Illumina has in no way committed itself to maintaining those jobs in San Diego. And as it turns out, the 300 manufacturing jobs had magically diminished to 100 manufacturing jobs when the ink was put to paper.

Nothing about this deal is what it seems. The $1.5 million rebate. It's actually $1.5 million plus 3% which the city will pay out in one lump sum. That 3% really adds up year after year. The 10 year time period? It's really the lesser of 10 years or whenever Illumina can claim the rebate. Illumina moving to Poway or Memphis? It turns out neither Poway nor Memphis had ever heard of that. Illumina seeking a tax advantage not to move out of San Diego? Illumina CEO Flatley didn't approach the City. The Mayor's office in the person of Almis Udrys, Kevin Faulconer's Director of Government Affairs, approached him. The City Council's approval of the deal? The City Council's "approval" came after the deal had already been signed by Faulconer and Flatley. Did anyone on the City Council do their homework or due diligence to check this deal out? The first clue, Sherlock, was that Illumina had signed 15 year leases on all or some of its properties. Doesn't seem that they were going anywhere any time soon.

The Illumina deal sets a disastrous precedent for other corporations to seek out their own tax deals. It is just the harbinger of things to come. With the San Diego Regional Economic Development Corporation giving the "heads up", and Almis Udrys as liason, Mayor Faulconer is only too able and willing to do tax giveaways to San Diego corporations. Hey, we're open for business. C'mon down! The City Council's approval will just be an afterthought. Someone from the Mayor's office, like David Graham, will send the Council a Memorandum telling them to hurry up and ratify the Mayor's deals.

That's money that won't be used for parks, libraries, schools and infrastructure repairs like replacing 100 year old water mains and filling potholes. The Republicans' goal is to defund government and give the money to corporations. As their spokeman, Grover Norquist, has said, "We want to make government so small that it can be drowned in the bathtub." That's the Republican mantra. Corporate welfare of the type given to Illumina Corporation is a handy means for defunding government and transferring the money to the private sector.

Peter D. Enrich, a professor at Northeastern University School of Law has written:

The proliferation of state and local tax incentives designed to attract or retain business investment ... has proven troublingly resistant to reform. Despite a growing recognition ... that the competition over business incentives is at best a zero-sum game... the size of the incentive packages offered for large corporate facilities reaches ever-new heights ... The only consistent winners are the large businesses that can pit one jurisdiction against another for reduced tax burdens, while other taxpayers and citizens pay the cost in constrained government services and higher taxes ... The states and localities face a classic collective action problem: when they each pursue their individual self-interest, they all end up worse off.

CEO Jay Flatley was not going to move Illumina Corporation out of San Diego. He needs to stay close to the world class research universities in San Diego and the relationships developed therewith. His executives and highly paid employees don't want to trade San Diego's climate, the best in the nation, for Rich Perry's Texas hell hole. His kids want to continue surfing at the beaches. They all love their houses in La Jolla and Rancho Santa Fe. The wives want to continue shopping at University Towne Center. To uproot all these executives and highly paid employees would be unthinkable. Why then, does Mayor Faulconer think he has to offer tax rebate incentives to get major corporations to stay here? And to bum rush the City Council who obviously had not done their homework and due diligence on this issue. The best policy is to have faith and believe in San Diego as a place that major corporations would want to locate and, once located, would want to stay. The urge to offer tax incentives to corporations must be resisted. A Democratic Mayor would have resisted.

The Illumina rebate is just the beginning, the advent of a new era in San Diego politics, the signal that more is yet to come. The Mayor is sending a message to business. C'mon y'all, line up for your free tax giveaways. Mayor Kevin is open for business!

August 02, 2014

“You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers,” President Obama said Thursday.

He was referring to American corporations now busily acquiring foreign companies in order to become non-American, thereby reducing their U.S. tax bill.

But the President might as well have been talking about all large American multinationals.

Only about a fifth of IBM’s worldwide employees are American, for example, and only 40 percent of GE’s. Most of Caterpillar’s recent hires and investments have been made outside the US.

In fact, since 2000, almost every big American multinational corporation has created more jobs outside the United States than inside. If you add in their foreign sub-contractors, the foreign total is even higher.

At the same time, though, many foreign-based companies have been creating jobs in the United States. They now employ around 6 million Americans, and account for almost 20 percent of U.S. exports. Even a household brand like Anheuser-Busch, the nation’s best-selling beer maker, employing thousands of Americans, is foreign (part of Belgian-based beer giant InBev).

Meanwhile, foreign investors are buying an increasing number of shares in American corporations, and American investors are buying up foreign stocks.

Who’s us? Who’s them?

Increasingly, corporate nationality is whatever a corporation decides it is.

So instead of worrying about who’s American and who’s not, here’s a better idea: Create incentives for any global company to do what we’d like it to do in the United States.

For example, “American” corporations get generous tax credits and subsidies for research and development, courtesy of American taxpayers.

But in reducing these corporations’ costs of R&D in the United States, those tax credits and subsidies can end up providing extra money for them to do more R&D abroad.

3M is building research centers overseas at a faster clip than it’s expanding them in America. Its CEO explained this was “in preparation for a world where the West is no longer the dominant manufacturing power.”

3M is hardly alone. Since the early 2000s, most of the growth in the number of R&D workers employed by U.S.-based multinational companies have been in their foreign operations, according to the National Science Board, the policy-making arm of the National Science Foundation.

It would make more sense to limit R&D tax credits and subsidies to additional R&D done in the U.S. over and above current levels – and give them to any global corporation increasing its R&D in America, regardless of the company’s nationality.

Or consider Ex-Im Bank subsidies – a topic of hot debate in Washington these days. These subsidies are intended to boost exports of American corporations from the United States.

Tea Party Republicans call them “corporate welfare,” and Chamber-of-Commerce Republicans call them sensible investments. But regardless, they’re going to “American” multinationals that are making things all over the world.

That means any subsidy that boosts their export earnings in the United States indirectly subsidizes their investments abroad – including, very possibly, their exports from foreign nations.

GE, a major Ex-Im Bank beneficiary, has been teaming up with China to produce a new jetliner there that will compete with Boeing for global business. (Boeing, not incidentally, is another Ex-Im beneficiary). In fact, GE is giving its Chinese partner the same leading-edge avionics technologies operating Boeing’s 787 Dreamliner.

Caterpillar, another Ex-Im Bank beneficiary, is providing engine funnels and hydraulics to Chinese firms that eventually will be exporting large moving equipment from China. Presumably they’ll be competing in global markets with Caterpillar itself.

Rather than subsidize “American” exporters, it makes more sense to subsidize any global company – to the extent it’s adding to its exports from the United States.

Which brings us back to American companies that are morphing into foreign companies in order to lower their U.S. tax bill.

“I don’t care if it’s legal,” said the President. “It’s wrong.”

It’s just as wrong for American corporations to hide their profits abroad – which many are doing simply by setting up foreign subsidiaries in low-tax jurisdictions, and then making it seem as if the foreign subsidiary is earning the money.

Caterpillar, for example, saved $2.4 billion between 2000 and 2012 by funneling its global parts business through a Swiss subsidiary (a ruse so audacious that one of its tax consultants warned Caterpillar executives to “get ready to do some dancing” when called before Congress to justify it).

And what about American corporations that avoid U.S. taxes by never bringing home what they legitimately earn abroad – a sum now estimated to be in the order of $1.6 trillion?

Rather than focus on the newly-fashionable tax-avoidance strategy of changing corporate nationality, it makes more sense to tax any global corporation on all income earned in the United States (with high penalties for shifting that income abroad), and no longer tax “American” corporations on revenues earned outside America. Most other nations already follow this principle.

In other words, let’s stop worrying about whether big global corporations are “American.” We can’t win that game. Focus instead on what we want global corporations of whatever nationality to do in America, and on how we can get them to do it.

July 24, 2014

Ashford University and University of Phoenix Worst Offenders Targeting Returning Vets

Everyone wants to better themselves, right, by getting a college education. Most of all the Iraq and Afghanistan vets transitioning into civilian life. To that end our politicians in Washington have crafted a GI Bill that allows them to do just that at taxpayer expense. Problem is most of that money is being gobbled up by for-profit universities like the University of Phoenix and Ashford University which don't even qualify for state financial aid. These universities attract and recruit students by advertising heavily and "selling" them on the value of one of their degrees. But when many of the students graduate, they can't get a job based on a degree which potential employers say is worthless. And despite the GI bill, many of them take on additional student loan debt.

Investors looking to target the next profitable, gullible segment of the population have gone after those who think a college diploma will help them get ahead. They've advertised mightily and charged exhorbitant tuition in order to get people, who have swallowed the conventional wisdom that a college degree is the be all and end all of the American Dream and of bettering one's self, enrolled. And it's a time proven adage that, if you want to make money, you have to advertise. While traditional universities do little if anything in the way of advertising, for-profit universities advertise the hell out of their product - a college degree. You can sell anything from a proposition on the ballot (the Barrio Logan initiative that the Chamber of Commerce sold to San Diego) to politicians (those with the most ads win) to cars to peanut butter. Those without the money to do ads lose out whether they be products or politicians or ideas (British Petroleum really does care about the environment). The American unsophisticated public falls for the ads every time. This is why investors set out to sell the American public - especiallly returning GIs - on getting a college degree at their for-profit universities.

About a decade ago, a corporation called Bridgepoint Education Inc. purchased what was then called Franciscan University of the Prairies, a near-bankrupt, 300-student college located in Iowa that for decades had been run by a local order of Franciscan nuns. The investor group, like several others, bought a nearly bankrupt college in order to get their legal accreditation status. That enabled Ashford's students to tap federal financial aid dollars, the source of nearly 85 percent of the university's revenues - more than $600 million in the last academic year. Ashford immediately moved most of its online operations to San Diego. The football stadium in Clinton, Iowa goes unused since Ashford doesn't even have a football team. They are all about using the capitalist system including mega advertising and IPOs to make profits. Incidentally, in 2009 Bridgepoint engineered an initial public stock offering that brought in $142 million. Not even Harvard or Stanford can say that.

According to Huffington Post, Just as Wall Street managed to use simple things like home mortgages as raw material for complex and profitable investments, Bridgepoint has pulled off its own bit of alchemy here in Iowa: It has leveraged the purchase of a failing but accredited campus into a badge of authenticity for its entire sprawling operation -- even as students have fared poorly, dropping out in large numbers and increasingly unable to pay back their federal debts.

The current scam involves duping returning GIs in order to capitalize on the Post 9/11 GI Bill. In July of 2008 that bill was signed into law, creating a new robust education benefits program rivaling the WWII Era GI Bill of Rights. Investors at for-profit universities like Ashford and University of Phoenix sensed a potential gold mine. The University of Phoenix's San Diego campus has received over $95 million to educate returning vets since 2009, more money than the entire University of California system including all its extension programs has received.

The Center for Investigative Reporting (CIR) has concluded that the GI Bill which was designed to help veterans live the American Dream is instead supporting for-profit colleges that spend lavishly on marketing but can leave veterans with worthless degrees and few job prospects. One reason that the U of Phoenix has made so much money is that its degrees are so expensive. An Associate's degree costs about ten times what a similar degree at a community college (which doesn't advertise) would cost. And taxpayers are picking up the bill for investor owned, for-profit colleges' insatiable greed.

The University of Phoenix won’t say how many of its veterans graduate or find jobs, but the overall graduation rate at its San Diego campus is less than 15 percent, according to the U.S. Department of Education, and more than a quarter of students default on their loans within three years of leaving school.

Those figures fall short of the minimum standards set by the California Student Aid Commission, which dispenses state financial aid. The commission considers either a graduation rate lower than 30 percent or a loan default rate of more than 15.5 percent clear indicators of a substandard education.

No such restrictions govern GI Bill funds. And nearly 300 California schools that received GI Bill money either were barred from receiving state financial aid at least once in the past four years or operated without accreditation, CIR has found.

Part of the problem is that the American Dream, insofar as a college education is a part of it, has little more validity at this point than a Bronx cheer. The conventional wisdom is that a college education will help you get ahead. It's just that not every college degree is worth the paper it's written on. Sure a college degree from Stanford or the University of California at San Diego may help you get ahead as long as it's in the right fields. But college degrees from the likes of the University of Phoenix and Ashford University will likely hang on the wall while the graduate works his or her minimum wage job at McDonald's or Wal-Mart.

The University of Phoenix’s San Diego campus doesn’t even look like a college. It’s a few mid-rise office buildings in a suburban office park, indistinguishable from the life insurance company that occupies the glass-and-steel structure across the street. Like all of the other campuses in this for-profit college chain, the buildings here are leased, not owned, so the parent corporation (the Apollo Group, Inc.) can quickly respond to changing market conditions. And the faculty have the status of temp workers. No instructor has tenure. The vast majority of them are part time. Since U of Phoenix is all about profit, they can be here today when the getting is good and gone tomorrow when the profits dry up.

Of the $1.5 billion in GI Bill funds spent on tuition and fees in California since 2009, CIR found that more than 40 percent – $638 million – went to schools that have failed the state financial aid standard at least once in the past four years. Four of those schools were University of Phoenix campuses, which together took in $225 million. Among the others are massage schools, paralegal programs and auto repair academies. More than a third – 121 schools – have no academic accreditation, like the Institute for Advanced Study of Human Sexuality in San Francisco and the Pacific Coast Horseshoeing School in Amador County.

Some progressive Democrats in Washington have tried to tighten up the standards set forth in the GI Bill to no avail since the for-profit university lobbyists have been so successful at getting their way. In 2012, Iowa Sen. Tom Harkin issued a scathing 5,000-page report detailing the practices of 30 large for-profit education firms. But Republicans, who are all for profit making at the expense of everything else were not impressed.

So lobbying and advertising are the main educational tools that for-profit universities use to ensure that the profits keep coming even while gullible veterans and other American citizens are recruited by so-called advisors to pursue a "higher" education at the likes of Ashford University and the University of Phoenix. At the state level their lobbyists have also been successful. In California, legislation to prevent schools with low graduation rates and high student loan default rates from receiving GI Bill money was gutted of those measures.

At the San Diego campus of the University of Phoenix the overall graduation rate is less than 15%. More than a quarter of its students default on their student loans within three years of getting their worthless degrees. The defaults add huge amounts to their student loan debt which cannot be gotten out of by means of bankruptcy. Student loan debt now totaling over a trillion dollars nationwide will follow them the rest of their lives and even take a bite out of their social security payments when they're old and gray.

California state legislators want for-profit colleges to tell them how many of the veterans graduate and how many find jobs they get based on their degrees. Needless to say lobbyists for the for-profit universities are fighting this every step of the way.

California Attorney General Kamala Harris is investigating Bridgepoint, parent corporation of Ashford University. SEC filings show that San Diego-based Bridgepoint Education spent $871 million on marketing and recruiting over the last three years and took in $336 million in profit. Combined, that was more than the firm spent on instruction. The company has been accused of making false statements to students in order to get them to enroll. “As far as I’m concerned, Ashford committed fraud,” said Patrick Keane, a 20-year Navy veteran from Iowa who spent his GI Bill funds on a teaching program at the online college only to find no schools would recognize the degree.

High power recruitment techniques are used by so-called "enrollment advisers" whose main job is to get potential students to sign up. Former Marine Cpl. Moses Maddox said the University of Phoenix also targets veterans’ vulnerabilities. Maddox served in Iraq during the 2004 siege of Fallujah. When he returned home, he went to work for the University of Phoenix’s parent company as a recruiter, calling up to 100 veterans a day. “My job was to assess their fear and then harp on that fear, capitalize on that fear and get them to buy,” said Maddox, 33. He said he was so disgusted by the company’s recruiting practices that he quit and rejoined the military for 16 months.

It's safe to say that for-profit universities like Ashford and University of Phoenix are more interested in their bottom line profits than in their students' educational and job prospects. They profit by capitalizing on the conventional wisdom that you need a college degree in order to get ahead and on selling a phony version of the American Dream.

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How would you react if one of your neighbors announced that while he obviously benefits from having clean water, highways, Medicare, police protection, parks, schools, and other public services, he was no longer going to pay his part of the taxes that make them available?

And what if this neighbor also said he was renouncing his American citizenship to become a citizen of Switzerland, because he could pay less taxes there? Not that he was actually moving to that cold country, mind you -- no, no, he'd still be living right here in the good ol' USA, still benefitting from all those public services that taxpayers like you and I provide.

Surely, you think, this has to be a joke. A person can't really do this, can they? No, of course a "real" person could not get away with this. You see, corporations are funny creatures. For example, they don't want to pay their share of America's tax bill, but then they're first in line demanding subsidies, grants and other special handouts from America's government to pad their financial bottom line.

That's hilarious hypocrisy -- but it's no laughing matter, since it means you and I have to pay more to cover their tax avoidance, while also seeing our public money siphoned out of the programs that we need into the pockets of corporate elites, who most often use the funds against the public interest.

Corporate tax dodging has become both rampant and ridiculous. Take an increasingly popular scam called "inversion," which is nothing but a perversion of tax law, business ethics and common decency. It works like this: By merging with a corporation based in a country with lax tax laws, a U.S. corporation can reincorporate as a citizen of that country and shift its tax obligations there, even though all or most of its profits are made from sales in the U.S-of-A.

For example, Gregory Wasson of Long Grove, Illinois, announced that he has plans for all of the above. Gregory isn't my neighbor, but he sounds like a "real" person. So how is he getting away with this scam, you ask? While Greg is not personally my neighbor, or yours, the corporation he heads might be. Wasson is CEO of America's largest drugstore chain, Walgreens Corporation, the sprawling, $72-billion-a-year behemoth that is in all 50 states and has stores in thousands of neighborhoods all across the country.

But Greg no longer wants Walgreens to be American, so he is presently trying to use this tax-shifting film-flam by merging with a Swiss-based chain. Rather than paying the roughly $800 million a year tax tab it owes to our nation, Walgreens would pay maybe $600 million to Switzerland.

Of course, the stores will not move to Switzerland. Wasson fully intends to keep extracting profits from our neighborhoods and for Walgreens to keep benefiting from all the public services that America provides, from police to infrastructure. Through inversion -- a reversal of the natural order -- the giant corporation would continue to enjoy enormous profits and benefits it gets from the United States, but pay Swiss taxes. So you and I are left picking up Walgreens' tab, and the Swiss gain 600 million in tax dollars for services and infrastructure they did not provide -- unless you count being a tax shelter as service and infrastructure.

Walgreens' crass tax ploy would also give it a competitive advantage over other American drug stores that aren't so greedy as to abandon America and, as Sen. Dick Durbin put it, "move their headquarters for a tax break."

Oh, one more thing: About a fourth of Walgreens' annual income is derived from -- guess who? -- our U.S. government. Yes, our very government that the people of Wasson & Co. say they no longer want to help support. The unpatriotic drugstore ingrate drew nearly $17 billion last year from Medicare and Medicaid payments provided by Uncle Sam.

If Walgreens doesn't want to support public programs like these, the programs should not be supporting Walgreens. To help eliminate this deeply unpatriotic inversion gimmick, contact Americans for Tax Fairness: http://www.americansfortaxfairness.org.

June 21, 2014

“Double Irish with a Dutch sandwich,” isn’t actually something you can eat, rather it is depriving the U.S. government of the funds it needs to feed the poor.

Medtronic is as American a company as they come. The surgeon who created its original technology was born and raised in Minnesota, where he lived his entire life. He was educated at a public university there, which is where he eventually conducted his research.

Medtronic’s workforce was educated at American schools. Its products have been carried over American roads and rails for decades. Its medical devices continue to be purchased by American government insurance programs like Medicare and Medicaid, as well as private insurance premiums paid by American workers and their employers.

And if Medtronic’s management has its way, the company will soon become Irish.

Medtronic’s biggest customer is the United States government. How does it expect to get away with a move like that?

Because everybody evades their taxes nowadays – at least in the corporate and billionaire crowd.

Dark Matter

As French economist Gabriel Zucman observes, society has experienced “a profound shift in attitudes” towards taxes since the 1980s. Before then, the behavior of a company like Medtronic – along with General Electric, Starbucks, Walmart, Apple, and dozens of others – would be the source of public embarrassment for its executives. But, as Zucman rightfully observes, Reagan-era anti-government rhetoric soon made it socially acceptable for corporations and extremely wealthy individuals to evade their taxes.

Zucman, a student of the now-famous Thomas Piketty, became curious about the fact that the world’s balance sheets seemed to show more liabilities than assets. As Jacques Leslie wrote in the New York Times, it was “as if the world is in debt to itself.” Something invisible was out there, like economic dark matter warping the global financial universe.

Zucman found his answer: tax havens.

Zucman wrote up his results in a short book called “The Hidden Wealth of Nations,” which quickly became a French bestseller. (The Piketty crowd apparently has a penchant for best-selling books whose names are a play on classic economic titles. See “Capital in the Twenty-First Century.”)

The Lawlessness of Large Numbers

Zucman’s findings were striking. As Leslie puts it, the economist “has put creditable numbers on tax evasion, showing that it’s rampant – and a major driver of wealth inequality.” (A version of the book is here.) Among Zucman’s findings:

The actual corporate tax rate paid for U.S. corporations has dropped from 30 percent to 15 percent since the late 1980s, even though the official tax rate hasn’t changed.

20 percent of all corporate profits in the United States have been moved offshore.

Tax avoidance costs the government one-third of the tax revenue it should be receiving from corporations.

Zucman also found that $7.6 trillion of personal wealth is hidden in tax havens, which amounts to 8 percent of the world’s total personal wealth. He estimates the global tax revenues would increase by more than $200 billion if these tax avoidance practices were ended.

Strikingly, Zucman also disproves the myth that “our country is in hock to China.” If the wealth and tax havens were properly measured Europe would become a creditor, not a debtor, and U.S. indebtedness would be cut in half (from 18 percent of GDP to 9 percent).

Tax havens contain so much wealth that they are distorting the world economy. But they are not for the average man or woman. As Leslie notes, “only multinational corporations and people with at least $50 million in financial assets usually have the resources to engage in offshore tax evasion.”

As a result, this practice does more than just starve governments of needed tax revenue. It also makes the problem of wealth inequality even worse.

Dodgers Win

They’re not necessarily breaking the law, but companies like Apple – and perhaps soon, Medtronic – are certainly cheating. The esteemed Oxford Dictionary defines “cheating” as “gain(ing) an advantage over or deprive of something by using unfair or deceitful methods.”

When these companies use American resources to become American success stories, and then refuse to pay American taxes, that’s unfair. It may not be illegal – at least, not after their highly priced lobbyists game the system for them on the front end while equally high-priced lawyers cover their rear ends. But it’s wrong just the same.

“About 60 percent of multinational corporations’ foreign-source earnings and profits come from countries in which the firms have little business activity, evidence that these MNCs are using tax havens to avoid paying the U.S. corporate income tax.”

Offshore tax dodging can work any number of ways. Here’s one: Imagine that a typical wage earner – me, for example – could take advantage of the tactic Apple uses. I could create a separate “company” for myself, perhaps in Ireland, and then tell the IRS that all of my earnings were being paid in royalties, or usage fees, or other gimmicky charges, to “O’Eskow Inc. of Eire.”

I would pay no U.S. taxes on my earnings until I decided to “repatriate” them back to the United States – although, as a practical matter, most of the money would probably be here anyway, in an “O’Eskow” bank account. This kind of scheme is known in the business as a “Double Irish.”

The Luck of the Corporatish

That’s the Apple scheme made simple. And we haven’t even gotten into the variation of this scheme they call a “Double Irish with a Dutch sandwich,” which is also popular among other Silicon Valley tech companies. That isn’t something you can eat (although it can be used to deprive government of the funds needed to feed the poor).

Medtronic wants to do something slightly different. Right now it’s holding billions of dollars in overseas accounts, much of it presumably as the result of Apple-like moves. Now Medtronic is planning to buy an Irish company with that money and, in a move which is called an “inversion,” make the Irish entity the primary corporation. They win, their country loses.

Not that Medtronic expects to actually move. In fact, the company says it will hire more people in the U.S. (Maybe its senior executives don’t feel like moving.) Medtronic also promises to invest $10 billion in the U.S. over the next ten years.

But then, it implicitly promised not to defraud Medicare, too. And yet it did, paying a $75 million settlement when the fraud was discovered.

The Money Pit

There’s a simple solution to all of this: End tax havens and make corporations pay their fair share. After all, after-tax corporate profits are at or near record highs:

According to a recent report by Citizens for Tax Justice and the Public Interest Research Group, 72 percent of Fortune 500 companies operate subsidiaries in tax-haven jurisdictions. Just 6 percent of Fortune 500 companies account for more than 60 percent of profits reported offshore for tax purposes.

The Government Accountability Office found that large corporations pay an effective federal income tax rate of 12.6 percent – which, when adjusted for money-losing companies, comes out to about 16 percent. (That’s close to the rate Zucman found, and that rate also included smaller companies.) A third of large corporations paid less than 10 percent.

There is overwhelming consensus on this issue. PopulistMajority.org cites a November 2013 poll conducted by Hart Research Associates and Americans for Tax Fairness. The poll showed that 79 percent of Americans want to close offshore tax loopholes, to ensure that American corporations pay as much on foreign profits as they do on U.S. profits.

So why doesn’t the government do that? After all, as the EPI’s Hungerford notes, that would yield a half $1 trillion in new revenue over the next ten years. Why the inaction?

That’s What Friends Are For

First, there’s the issue of that widespread hostility towards government that is so popular nowadays among the wealthy and corporate executives – except, of course, when the government is writing big checks to their corporations.

The media doesn’t help, either. This account of the Medtronic situation, for example, shows how charged language leads the public to misunderstand tax issues. Without correction, the reporter says that Medtronic’s “broader” purpose involves “accessing billions in cash trapped overseas,” which is a demonstrably false assertion. (Although, to be fair, he does place that word in quotes later in the piece.)

Nothing is “trapped” anywhere, of course. Medtronic and its fellow corporations are free to transfer their offshore money at any time. In fact, that would be the ethical thing to do. Instead they spout evasive gibberish. “The combined company should generate significant free cash flow,” said Medtronic CEO Omar Ishrak during an investor call, “which can be deployed with much greater flexibility.”

With so many campaigns to finance, and so many lucrative post-political opportunities out there, this kind of corporation-coddling shouldn’t be a surprise. And it’s not.

No Justification for Inaction

Economist Josh Bivens does a yeoman’s job of refuting the Alice in Wonderland logic of Clinton and other “tax holiday” advocates. The “holiday” crowd claims that reducing the tax burden on already undertaxed corporations will bring in additional revenue. Actually, it will cost the federal government something in the neighborhood of $100 billion over 10 years.

How can we really solve this problem? As the EPI’s Hungerford notes, we can immediately end the deferral of taxes on offshore profits.

We can also follow the lead of the European Commission and dig more deeply into the tax evasion tactics used by companies like Apple and Starbucks. And we can close the offshore tax loopholes which are allowing corporations and their executives to skim the fruits of American resources without paying for them.

Ultimately, as the Los Angeles Times editorial board notes, we will need international cooperation to solve this problem on a global scale. But in the meantime the United States can act swiftly and decisively to close offshore loopholes and tax these corporations appropriately.

A little shame might go a long way, too. As Jacques Leslie writes, “there is no economic, political or moral justification for tax evasion.” The good people of Minnesota who helped Medtronic get started in the 1940s might feel the same way.

Updated to correct the source of the study on the use of tax havens by Fortune 500 companies. It is Citizens for Tax Justice and the Public Interest Research Group.

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.

May 04, 2014

Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.

Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.

This growing divergence between CEO pay and that of the typical American worker isn’t just wildly unfair. It’s also bad for the economy. It means most workers these days lack the purchasing power to buy what the economy is capable of producing — contributing to the slowest recovery on record. Meanwhile, CEOs and other top executives use their fortunes to fuel speculative booms followed by busts.

Anyone who believes CEOs deserve this astronomical pay hasn’t been paying attention. The entire stock market has risen to record highs. Most CEOs have done little more than ride the wave.

There’s no easy answer for reversing this trend, but this week I’ll be testifying in favor of a bill introduced in the California legislature that at least creates the right incentives. Other states would do well to take a close look.

The proposed legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break.Those with high ratios get a tax increase.

For example, if the CEO makes 100 times the median worker in the company, the company’s tax rate drops from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the pay of the typical worker, the tax rate goes down to 7 percent.

On the other hand, corporations with big disparities face higher taxes. If the CEO makes 200 times the typical employee, the tax rate goes to 9.5 percent; 400 times, to 13 percent.

The California Chamber of Commerce has dubbed this bill a “job killer,” but the reality is the opposite. CEOs don’t create jobs.Their customers create jobs by buying more of what their companies have to sell — giving the companies cause to expand and hire.

So pushing companies to put less money into the hands of their CEOs and more into the hands of average employees creates more buying power among people who will buy, and therefore more jobs.

The other argument against the bill is it’s too complicated. Wrong again. The Dodd-Frank Act already requires companies to publish the ratios of CEO pay to the pay of the company’s median worker (the Securities and Exchange Commission is now weighing a proposal to implement this). So the California bill doesn’t require companies to do anything more than they’ll have to do under federal law. And the tax brackets in the bill are wide enough to make the computation easy.

What about CEO’s gaming the system? Can’t they simply eliminate low-paying jobs by subcontracting them to another company – thereby avoiding large pay disparities while keeping their own compensation in the stratosphere?

No. The proposed law controls for that. Corporations that begin subcontracting more of their low-paying jobs will have to pay a higher tax.

For the last thirty years, almost all the incentives operating on companies have been to lower the pay of their workers while increasing the pay of their CEOs and other top executives. It’s about time some incentives were applied in the other direction.

The law isn’t perfect, but it’s a start. That the largest state in America is seriously considering it tells you something about how top heavy American business has become, and why it’s time to do something serious about it.

April 05, 2014

New analysis, hearing, report make clear: tax dodging corporations siphon revenue that could help Main Street

- Andrea Germanos, staff writer

Profits for U.S. companies are at a record high, yet companies have hoarded nearly one trillion overseas to dodge U.S. taxes, a new Moody's analysis shows.

Photo: janinsanfran/cc/flickr The findings, based on an analysis that looked at U.S. non-financial, Moody’s-rated companies, also reveal that these companies had stockpiled $1.64 trillion in cash at the end of 2013. That's about up about 12 percent from the year before.

Leading the pack of cash hoarders is Apple, which stockpiled $158.8 billion last year.

One of the companies exploiting tax loopholes to avoid paying U.S. taxes is Peoria, Illinois-based Caterpillar, which was scrutinized Tuesday at a Senate Permanent Subcommittee on Investigations hearing.

"Caterpillar is an American success story that produces iconic industrial machines. But it is also a member of the corporate profit-shifting club that has transferred billions of dollars offshore to avoid paying U.S. taxes," Subcommittee Chairman Carl Levin said in his opening statement.

Current polices incentivize such practices because companies don't have to pay taxes on profits from these overseas subsidiaries if the money isn't brought back to the United States.

That kind of loss of revenue has real impacts on Americans, Levin added, because it "increases the tax burden on working families, and it reduces our ability to make investments in education and training, research and development, trade promotion, intellectual property protection, infrastructure, national security and more – investments on which Caterpillar and other U.S. companies depend for their success."

This echoes findings from a report released last week showing that the decrease in corporate tax revenues has "demonstrably harmed state and federal budgets and the provision of services those funds pay for."

"Millions of Americans have yet to see any economic recovery," stated George Goehl, Executive Director of National People’s Action, which co-authored the report. "They're struggling to find jobs, make ends meet, and provide for their families. This report shows that the revenue needed for recovery didn't just vanish, it was siphoned off by corporations who refuse to pay their fair share."

The report shows that the downward spiral in funding of public services like schools and roads could be helped by an increase in corporate tax revenue. Some lawmakers, however, have pushed austerity on Main Street as the only option, as Sarah Anderson, Global Economy Project Director at the Institute for Policy Studies, told Common Dreams.

"It's astounding that Rep. Paul Ryan and other pro-austerity ideologues are claiming that we have no choice but to slash spending on vital programs like food stamps and Medicaid while big corporations are draining the Treasury through massive tax dodging," Anderson said.

Sen. John McCain, the ranking minority member of the subcommittee, blamed "the highest corporate tax rate of any country in the world" — 35 percent— as motivation for corporations like Caterpillar to park profits overseas.

very few companies pay anything like those rates. Total corporate federal taxes paid fell to 12.1% of U.S. profits in 2011, according to the Congressional Budget Office. The average profitable company in the Fortune 500 paid just 18.5% of its profits in federal income taxes between 2008 and 2010, according to Citizens for Tax Justice, a nonpartisan tax research organization. Dozens of large and profitable companies paid nothing in recent years.

"It is long past time to stop offshore profit shifting and start ensuring that profitable U.S. multinationals meet their U.S. tax obligations," Levin stated.

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March 28, 2014

In his final message after more than eight years as chief executive officer of Qualcomm Inc. (QCOM), Paul Jacobs on March 4 gave employees and shareholders what he called a “homework assignment.” “Send your Congress people your opinion that you’d like American companies to be able to bring offshore money back to the United States to either reinvest or return to shareholders", said Jacobs, now executive chairman of the San Diego based chipmaker, which has $21.6 billion in overseas profits.

Paul could have said, "Go home and hug your wife and children or it's been a pleasure being your CEO for 8 years and thank you for your work." Or tell your Congressman to raise the minimum wage or tell your Congressman to end homelessness now, but, no, his solipsistic exhortation was all about making Qualcomm executives and shareholders (not employees mind you!) even richer than they already are. Funny, you'd think he'd have made that request of the shareholders who have something to gain rather than the employees who do not.

What these tech companes actually do with their extra tax free money is not to create jobs, but to buy back their own stock thus driving up the price making it that much more lucrative when execs cash in their stock. Paul Jacobs, by the way, just cashed in 70,000 shares of Qualcomm stock on Monday, March 17th. The stock was sold at an average price of $76.79, for a total value of $5,375,300.00. Just think how much more Paul Jacobs would have made if the government had actually allowed Qualcomm to repatriate their foreign profits tax free and then used the money to buy back stock and drive up the price. Such a shame.

Paul Jacobs has been fixated on this problem of getting Qualcomm's money back into the US tax free for a number of years. According to a 2011 San Diego Union article: "There's $1.4 trillion that U.S. companies have so-called offshore," [Qualcomm CEO Paul] Jacobs said at the Qualcomm annual meeting. "So you think about that with respect to the size of the stimulus package. These are real numbers, and so getting that money back into the United States would be very valuable for the U.S. economy, of course. So we've been out talking about repatriation."

The tax holiday of 2004 was called the American Jobs Creation Act. It created very few jobs and in retrospect turned out to be a total scam. Various companies did bring $362 billion back into the US under the pretense that this money would be used to create jobs. But the majority of it did not go to building factories nor did it go to research. Instead corporations bought back their own stock giving a boon to shareholders and execs and created jobs overseas. It was actually responsible for destroying jobs. In a huge disconnect from Paul Jacobs' purported good intentions about job creation in the US, Qualcomm announced in 2011 that it planned to invest $1 billion to build a massive manufacturing facility in Taiwan.

Buried in the fine print of the Jobs Creation Act is a hard truth: companies were not obliged to spend one dollar on new hiring or expanding research. If that sounds to you like an action with all the significance of moving a dollar from your left pocket to your right, your assumption is correct. The way lobbyists wrote the bill, companies could use their tax savings for virtually anything company executives said contributed to a firm's ability to retain workers and create jobs. In other words, creating jobs was not a requirement of the American Jobs Creation Act, while destroying jobs was an authorized purpose." As Johnston states: "Perhaps the law should have been called the 2004 Destroy American Jobs Act.

In 2013 US corporations' cash abroad rose by $206 billion. They parked cash in Bermuda, the Cayman Islands, Ireland, Luxembourg, Switzerland, the Netherlands and whatever other jurisdictions had little or no taxes. According to Bloomberg, multinational companies ahave accumulated $2 Trillion outside the US. That's up 11.8% from one year ago. The top 15 companies now hold over $795 billion outside US. But in terms of cash held abroad, Qualcomm is a relative piker compared with Microsoft ($76.4 billion) and Apple ($54.4 billion). Qualcomm's $21.6 billion held abroad is chump change compared to the big guys. These companies are deferring hundreds of billions in US taxes which could be used to rebuild infrastructure (thus creating jobs) or to invest in renewable energy sources (thus creating jobs). They are lobbying to end the system of paying tax when they repatriate profits altogether.

US companies owe taxes up to a 35 percent rate on profits they earn around the world. Whatever taxes they do pay in a foreign country are deducted from what they owe Uncle Sam. For instance, say they paid 5% taxes on their earnings in the Cayman Islands. Then they would owe Uncle Sam 30% if and when they repatriated that money to the US. But they don't want to pay that. Instead they lobby the Federal government to let them repatriate the money tax free.

Here’s how the scam works. Corporations like Qualcomm set up subsidiaries in offshore jurisdictions with zero tax rates like Bermuda and the Cayman Islands. Then they transfer assets to those corporations. In Qualcomm’s case those assets are mainly “intellectual property” like patents. These are the kinds of assets that are very easy to transfer. They typically sell these assets to their subsidiary for a very low price. They can legitimately do this if profits have not started to really kick in like in the case of a new patent that hasn’t become a goldmine yet.

As profits from that patent start to come in, the parent US based corporation has to pay huge royalties to the offshore subsidiary for the use of its patents. Profits pile up offshore where they aren’t taxed while losses pile up onshore where they qualify for a tax deduction.

Qualcomm in its lobbying efforts has put its money where Paul Jacobs mouth is. According to OpenSecrets.org, Qualcomm spent $4,740,000 in 2012 and $6,620,000 in 2011 on lobbying. Qualcomm’s lobbying efforts have increased from a relatively modest $415,000 in 2000 to the neighborhood of $6 million a year (with the exception of 2012) starting in 2007.

In recent years Qualcomm has increased the number of properties owned or leased outside the United States from 70 to 99, according to documents filed with the Securities and Exchange Commission. Meanwhile, Qualcomm pared down its U.S. property holdings from 76 to 73. Qualcomm is one of the nation's premier outsourcers and pioneered the practice of shipping work overseas.

Congress is balking at letting the Qualcomms, Apples and Microsofts of the world pull a second scam akin to the one they pulled in 2005. They know that the Jobs Creation Act did not create American jobs. Sure it enriched corporate CEOs and shareholders, but the only jobs created were in foreign countries. You know the old saying: "Fool me once, shame on you. Fool me - you can't get fooled again." Thank you, George W Bush for those words of wisdom.

February 20, 2014

It’s hardly a secret that the heads of major corporations in the United States get mind bending paychecks. While high pay may be understandable when a top executive turns around a failing company or vastly expands a company’s revenue and profit, but CEOs can get paychecks in the tens or hundreds of millions even when they did nothing especially notable.

For example, Lee Raymond retired from Exxon-Mobil in 2005 with $321 million. (That’s 22,140 minimum wage work years.) His main accomplishment for the company was sitting at its head at a time when a quadrupling of oil prices sent profits soaring. Hank McKinnel walked away from Pfizer in 2006 with $166 million. It would be hard to identify his outstanding accomplishments.

But you don’t have to be mediocre to get a big paycheck as a CEO. Bob Nardelli pocketed $240 million when he left Home Depot after six years. The company’s stock price had fallen by 40 percent in his tenure, while the stock its competitor Lowe’s had nearly doubled.

And then we have the CEOs in the financial industry, heads of huge banks like Lehman’s, Bear Stearns, and Merrill Lynch, or the insurer AIG. These CEOs took their companies to the edge of bankruptcy or beyond and still walked away with hundreds of millions of dollars in their pockets.

It’s not hard to write contracts that would ensure that CEO pay bears a closer relationship to the company’s performance. For example, if the value of Raymond’s stock incentives at Exxon were tied to the performance of the stock of other oil companies (this can be done) then his going away package probably would not have been one-tenth as large. Also, there can be longer assessment periods so that it’s not possible to get rich by bankrupting a company.

If anyone were putting a check on CEO pay, these sorts of practices would be standard, but they aren’t for a simple reason. The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.

Corporate CEOs often have considerable input into who sits on their boards. (Some CEOs sit on the boards themselves.) They pick people who will be agreeable and not ask tough questions.

For example, corporate boards probably don’t often ask whether they could get a comparably skilled CEO for lower pay, even though top executives of major companies in Europe, Japan, and South Korea earn around one-tenth as much as CEOs in the United States. Of course this is the directors’ job. They are supposed to be trying to minimize what the company pays their top executives in the same way that companies try to cut costs by outsourcing production to Mexico, China, and elsewhere.

But friends don’t try to save money by cutting their friends’ pay. And when the directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously.

Instead we see accomplished people from politics, academia, and other sectors collecting their pay and looking the other way. For example, we have people like Erskine Bowles who had the distinction of sitting on the boards of both Morgan Stanley and General Motors in the years they were bailed out by the government. And we have Martin Feldstein, the country’s most prominent conservative economist, who sat on the board of insurance giant AIG when it nearly tanked the world’s financial system. Both Bowles and Feldstein were well-compensated for their “work.”

Excessive CEO pay matters not only because it takes away money that rightfully belongs to shareholders, which include pension funds and individuals with 401(k) retirement accounts. Excessive CEO pay is important because it sets a pattern for pay packages throughout the economy. When mediocre CEOs of mid-size companies can earn millions or tens of millions a year, it puts upward pressure on the pay of top executives in other sectors.

It is common for top executives of universities and private charities to earn salaries in the millions of dollars because they can point to executives of comparably sized companies who earn several times as much. Those close in line to the boss also can expect comparably bloated salaries. In other words, this is an important part of the story of inequality in the economy.

To try to impose the checks that don’t currently exist, the Center for Economic and Policy Research (CEPR) has created Director Watch. This site will highlight directors like Erskine Bowles and Martin Feldstein who stuff their pockets while not performing their jobs.

CEPR also worked with the Huffington Post to compile a data set that lists the directors for the Fortune 100 companies, along with their compensation, the CEOs’ compensation, and the companies’ stock performance. This data set is now available at the Huffington Post as Pay Pals.

Perhaps a little public attention will get these directors to actually work for their hefty paychecks. The end result could be to bring a lot of paychecks for those at the top back down to earth.

November 18, 2013

Walmart just reported shrinking sales for a third straight quarter. What’s going on? Explained William S. Simon, the CEO of Walmart, referring to the company’s customers, “their income is going down while food costs are not. Gas and energy prices, while they’re abating, I think they’re still eating up a big piece of the customer’s budget.”

Walmart’s CEO gets it. Most of Walmart’s customers are still in the Great Recession, grappling with stagnant or declining pay. So, naturally, Walmart’s sales are dropping.

But what Walmart’s CEO doesn’t get is that a large portion of Walmart’s customers are lower-wage workers who are working at places like … Walmart. And Walmart, not incidentally, refuses to raise its median wage (including its army of part-timers) of $8.80 an hour.

Walmart isn’t your average mom-and-pop operation. It’s the largest employer in America. As such, it’s the trendsetter for millions of other employers of low-wage workers. As long as Walmart keeps its wages at or near the bottom, other low-wage employers keep wages there, too. All they need do is offer $8.85 an hour to have their pick.

On the other hand, if Walmart were to boost its wages, other employers of low-wage workers would have to follow suit in order to attract the employees they need.

Get it? Walmart is so huge that a wage boost at Walmart would ripple through the entire economy, putting more money in the pockets of low-wage workers. This would help boost the entire economy — including Walmart’s own sales. (This is also an argument for a substantial hike in the minimum wage.)

Walmart could learn a thing or two from Henry Ford, who almost exactly a century ago decided to pay his workers three times the typical factory wage at the time. The Wall Street Journal called Ford a traitor to his class but he proved to be a cunning businessman.

Ford’s decision helped boost factory wages across the board — enabling so many working people to buy Model Ts that Ford’s revenues soared far ahead of his increased payrolls, and he made a fortune.

So why can’t Walmart learn from Ford? Because Walmart’s business model is static, depending on cheap labor rather than increased sales, and it doesn’t account for Walmart’s impact on the rest of the economy.

You can help teach Walmart how much power its consumers have: Stand with its workers who deserve a raise, and boycott Walmart on the most important sales day of the year, November 29.

August 06, 2013

Instead of spending August on the beach, corporate lobbyists are readying arguments for when Congress returns in September about why corporate taxes should be lowered.

But they’re lies. You need to know why so you can spread the truth.

Lie #1:U.S. corporate tax rates are higher than the tax rates of other big economies. Wrong. After deductions and tax credits, the average corporate tax rate in the U.S. is lower. According to the Congressional Research Service, the United States has an effective corporate tax rate of 27.1%, compared to an average of 27.7% in the other large economies of the world.

Lie #2: U.S. corporations need lower taxes in order to make investments in new jobs. Wrong again. Corporations are sitting on almost $2 trillion of cash they don’t know what to do with. The 1000 largest U.S. corporations alone are hoarding almost $1 trillion.

Rather than investing in expansion, they’re buying back their own stocks or raising dividends. They have no economic incentive to expand unless or until consumers want to buy more, but consumer spending is pinched because the middle class keeps shrinking and the median wage, adjusted for inflation, keeps dropping.

Lie #3: U.S. corporations need a tax break in order to be globally competitive. Baloney. The “competitiveness" of American corporations is becoming a meaningless term because most big U.S. corporations are no longer American companies at all. The biggest have been creating way more jobs abroad than in the U.S.

A growing percent of their customers are outside the U.S. Their investors are global. They do their R&D all over the world. And they park their profits wherever taxes are lowest — another reason they pay so little in taxes. (Don’t be fooled that a “tax amnesty" that will bring all that money back to America and generate lots of new investments and jobs here — see item #2 above).

Corporations want corporate tax reduction to be the centerpiece of “tax reform" come the fall. The President has already signaled a willingness to sign on in return for more infrastructure investment. But the arguments for corporate tax reduction are specious.

The U.S. Supreme Court ruled Monday in favor of biotech giant Monsanto, ordering Indiana farmer Vernon Hugh Bowman, 75, to pay Monsanto more than $84,000 for patent infringement for using second generation Monsanto seeds purchased second hand—a ruling which will have broad implications for the ownership of 'life' and farmers' rights in the future.

In the case, Bowman had purchased soybean seeds from a grain elevator—where seeds are cheaper than freshly engineered Monsanto GE (genetically engineered) seeds and typically used for animal feed rather than for crops. The sources of the seeds Bowman purchased were mixed and were not labeled. However, some were "Roundup Ready" patented Monsanto seeds.

The Supreme Court Justices, who gave Monsanto a warm reception from the start, ruled that Bowman had broken the law because he planted seeds which naturally yielded from the original patented seed products—Monsanto's policies prohibit farmers from saving or reusing seeds from Monsanto born crops.

Farmers who use Monsanto's seeds are forced to buy the high priced new seeds every year.

Ahead of the expected ruling, Debbie Barker, Program Director for Save Our Seeds (SOS), and George Kimbrell, staff attorney for Center for Food Safety (CFS), asked in an op-ed earlier this year, "Should anyone, or any corporation, control a product of life?":

Bowman vs. Monsanto Co. will be decided based on the court's interpretation of a complex web of seed and plant patent law, but the case also reflects something much more basic: Should anyone, or any corporation, control a product of life?

[Monsanto's] logic is troubling to many who point out that it is the nature of seeds and all living things, whether patented or not, to replicate. Monsanto's claim that it has rights over a self-replicating natural product should raise concern. Seeds, unlike computer chips, for example, are essential to life. If people are denied a computer chip, they don't go hungry. If people are denied seeds, the potential consequences are much more threatening.

Bowman had argued that he was respecting his contract with Monsanto, purchasing directly from them each year, but couldn't afford Monsanto's high prices for his riskier late season crops. Bowman's defense argued that Monsanto's patent was "exhausted" through the process of natural seed reproduction and no longer applied to Bowman's second generation seeds.

“If they don’t want me to go to the elevator and buy that grain," Bowman had stated, "then Congress should pass a law saying you can’t do it."

The Center for Food Safety released a report in February which shows three corporations control more than half of the global commercial seed market.

As a result, from 1995-2011 the average cost to plant 1 acre of soybeans rose 325%.

As APreports, more than 90 percent of American soybean farms use Monsanto's "Roundup Ready" seeds, which first came on the market in 1996.

Vandana Shiva, an expert on seed patents and their effects on farmers around the world, wrote recently:

Monsanto’s concentrated control over the seed sector in India as well as across the world is very worrying. This is what connects farmers’ suicides in India to Monsanto vs Percy Schmeiser in Canada, to Monsanto vs Bowman in the US, and to farmers in Brazil suing Monsanto for $2.2 billion for unfair collection of royalty.

Through patents on seed, Monsanto has become the “Life Lord” of our planet, collecting rents for life’s renewal from farmers, the original breeders.

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This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

March 26, 2013

Bipartisan agreement in Washington usually means citizens should hold on to their wallets or get ready for another threat to peace. In today’s politics, the bipartisan center usually applauds when entrenched interests and big money speak. Beneath all the partisan bickering, bipartisan majorities are solid for a trade policy run by and for multinationals, a health-care system serving insurance and drug companies, an energy policy for Big Oil and King Coal, and finance favoring banks that are too big to fail.

Economist James Galbraithcalls this the “predator state,” one in which large corporate interests rig the rules to protect their subsidies, tax dodges and monopolies. This isn’t the free market; it’s a rigged market.

Wall Street is a classic example. The attorney general announces that some banks are too big to prosecute. Despite what the FBI called an “epidemic of fraud,” not one head of a big bank has gone to jail or paid a major personal fine. Bloomberg News estimated that the subsidy they are provided by being too big to fail adds up to an estimated $83 billion a year.

But true conservatives are — or should be — offended by corporate welfare as well. Conservative economists Raghuram Rajan and Luigi Zingales argue that it is time to “save capitalism from the capitalists,” urging conservatives to support strong measures to break up monopolies, cartels and the predatory use of political power to distort competition.

Here is where left and right meet, not in a bipartisan big-money fix, but in an odd bedfellows campaign to clean out Washington.

For that to happen, small businesses and community banks will have to develop an independent voice in our politics. Today, they are too often abused as cover for multinational corporations and banks. The Chamber of Commerce exemplifies the scam. It pretends to represent the interests of millions of small businesses, but its issue and electoral campaigns are defined and paid for by big-money interests working to keep the game rigged.

An authentic small-business lobby has finally started to emerge, as William Greider reports in the most recent issue of the Nation. The American Sustainable Business Council, along with the Main Street Alliance and the Small Business Majority, are enlisting small business owners to speak for themselves — and challenging the corporate financed propaganda groups such as the Chamber and the National Federation of Independent Business. Their positions often align with those of progressives. They loathe the big banks and multinationals that work to undermine competition.

Greider reports on the antipathy these small business owners have for the big guys. Camille Moran, president and chief executive of Caramor Industries and Four Seasons Christmas Tree Farm in Natchitoches, La., rails against the “Wall Street wheelers and dealers.” They knew, she argues, that they “would get no sympathy saying that ending the high-income Bush tax cuts would hurt them, so instead they pretend it would hurt Main Street small business and employment. Don’t fall for it. . . . That’s a trillion dollars less we would have for education, roads, security, small business assistance and all of the other things that actually help our communities.”

ReShonda Young, operations manager of Alpha Express, a family-owned delivery service in Waterloo, Iowa: “We’re not afraid to compete with the biggest delivery companies out here, but it needs to be a fair fight, not one in which big corporations use loopholes to avoid their taxes, stick our business with the tab.”

Polls show these aren’t isolated views. The ASBC, the Main Street Alliance and the Small Business Majority sponsored a poll by Lake Research of small business owners. Ninety percent believe “big corporations use loopholes to avoid taxes that small businesses have to pay,” and three-fourths said their own businesses suffer because of it.

The ASBC and its allies have the potential to become what Jamie Raskin, a Maryland state senator, dubbed a “Chamber of Progress,” a small-business voice that is willing to take on the big guys that tilt the playing field.

The possibilities are endless. Wall Street argues for rolling back financial regulation on the grounds that it hurts community and small banks. What if community and small bankers joined the call of conservative Dallas Federal Reserve President Richard Fisher to break up the big banks?

Multinational executives have just launched the “LIFT America” Coalition to push for a territorial tax system that would exempt from U.S. taxes all profits reported abroad. ASBC and its allies could rally small businesses to demand closing down overseas tax havens and imposing a minimum tax on profits sitting abroad, so that they didn’t face a higher tax burden that their global competitors.

In today’s Washington, powerful corporate interests stymie progress on areas vital to our future. Can a right/left, small-business/worker odd bedfellows alliance emerge to counter the predatory interests? We can only hope so.

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The brackets are set for the big dance — the dance around tax responsibility. Most of the teams are in the bottom bracket. In this league, the lowest score wins.

Outside the stadium our nation's kids and seniors and low-income mothers may be dealing with food and housing cuts, but on the corporate playing floor new low-tax records are being set again this year. Just as this is a golden age for sports, this is also, as noted by the New York Times, "a golden age for corporate profits."

Corporations have simply stopped paying their taxes, perhaps using the 2008 recession as an excuse to plead hardship, but then never restoring their tax obligations when business got better. The facts are indisputable. For over 20 years, from 1987 to 2008, corporations paid an average of 22.5% in federal taxes. Since the recession, this has dropped to 10% -- even though their profits have doubled in less than ten years.

Pay Up Now just completed a compilation of corporate tax payments over the past five years, using SEC data as reported by the companies themselves. The firms chosen are top-earners who have filed 10-K reports through 2012. Their US Tax figures represent the five-year total of "current" payments.

The 64 corporate teams paid just over 8% in taxes over the five-year period.

The Slink Sixteen

General Electric: The worst tax record over five years, with $81 billion in profits and a $3 billion refund.

Exxon Mobil: Made by far the largest profits in the group, but paid less than 1% in U.S. taxes, and yet received oil subsidies along with their tax breaks. Unabashedly reports a 2012 "theoretical tax" of over $27 billion, almost 90% of its total income tax expense. The company was also near the top in contractor misconduct.

Verizon: Second worst tax record, with a refund despite $48 billion in profits.

Kraft Foods: Received a refund from the public despite $13.5 billion in profits. Also a leading job-cutter.

Citigroup: One of the five big banks who are estimated to get a bailout/refund from the American public amounting to three cents from every tax dollar.

Dow Chemical: Received a refund despite almost $10 billion in profits.

GE, Boeing, Exxon, and Apple. Merck almost crashed the party, but the competition was too stiff.

The Winner?

No one wins this game. In a financial sense they do, but the gains are outweighed by the greed and irresponsibility of tax avoidance.

All these companies, after using our infrastructure and technology and research facilities and higher education and national defense to build incomparably successful businesses, are now doing everything in their power to avoid paying anything back, while instead using a carefully manipulated set of "legal" business writeoffs and exemptions and loopholes to cut their tax bills to almost nothing. And all the while they rant about the unfairness of the U.S. tax code.

The real madness is that human beings are suffering because of the tax games corporations play.

February 25, 2013

The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems.

Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.

However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.

And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.

The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.

So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.

The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."

But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.

Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate.

Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.

Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:

"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."

The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%.

Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly. Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.

Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:

"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."

We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.

That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.

There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.

February 11, 2013

When the greed, recklessness, and illegal behavior on Wall Street drove this country into the deepest recession since the 1930s, the largest financial institutions in the United States took every advantage of being American. They just loved their country - and the willingness of the American people to provide them with the largest bailout in world history. In 2008, Congress approved a $700 billion gift to Wall Street. Another $16 trillion in virtually zero interest

Speaking at a Thursday news conference on a new bill to shut down overseas tax havens, Sen. Bernie Sanders gestures toward a photo of a Cayman Islands building used by more than 18,000 companies to avoid paying taxes.loans and other financial assistance came from the Federal Reserve. America. What a great country.

But just two years later, as soon as these giant financial institutions started making record-breaking profits again, they suddenly lost their love for their native country. At a time when the nation was suffering from a huge deficit, largely created by the recession that Wall Street caused, the major financial institutions did everything they could to avoid paying American taxes by establishing shell corporations in the Cayman Islands and other tax havens.

In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis.

On and on it goes. Wall Street banks and large companies love America when they need corporate welfare. But when it comes to paying American taxes or American wages, they want nothing to do with this country. That has got to change.

Offshore tax abuse is not just limited to Wall Street. Each and every year corporations and the wealthy are avoiding more than $100 billion in U.S. taxes by sheltering their income offshore.

Pharmaceutical companies like Eli Lilly and Pfizer have fought to make it illegal for the American people to buy cheaper prescription drugs from Canada and Europe. But, during tax season, Eli Lilly and Pfizer shift drug patents and profits to the Netherlands and other offshore tax havens to avoid paying U.S. taxes.

Apple wants all of the advantages of being an American company, but it doesn't want to pay American taxes or American wages. It creates the iPad, the iPhone, the iPod, and iTunes in the United States, but manufactures most of its products in China so it doesn't have to pay American wages. Then it shifts most of its profits to Ireland, Luxembourg, the British Virgin Islands and other tax havens to avoid paying U.S. taxes. Without such maneuvers, Apple's federal tax bill in the United States would have been $2.4 billion higher in 2011.

Offshore tax schemes have become so absurd that one five-story office building in the Cayman Islands is now the "home" to more than 18,000 corporations.

This tax avoidance does not just reduce the revenue that we need to pay for education, healthcare, roads, and environmental protection, it is also costing us millions of American jobs. Today, companies are using these same tax schemes to lower their tax bills by shipping American jobs and factories abroad. These tax breaks have contributed to the loss of more than 5 million U.S. manufacturing jobs and the closure of more than 56,000 factories since 2000. That also has got to change.

At a time when we have a $16.5 trillion national debt; at a time when roughly one-quarter of the largest corporations in America are paying no federal income taxes; and at a time when corporate profits are at an all-time high; it is past time for Wall Street and corporate America to pay their fair share.

That's what the Corporate Tax Dodging Prevention Act (S.250) that I have introduced with Rep. Jan Schakowsky (D-Ill.) is all about.

This legislation will stop profitable Wall Street banks and corporations from sheltering profits in the Cayman Islands and other tax havens to avoid paying U.S. taxes. It will also stop rewarding companies that ship jobs and factories overseas with tax breaks. The Joint Committee on Taxation has estimated in the past that the provisions in this bill will raise more than $590 billion in revenue over the next decade.

As Congress debates deficit reduction, it is clear that we must raise significant new revenue. At 15.8 percent of GDP, federal revenue is at almost the lowest point in 60 years. Our Republican colleagues want to balance the budget on the backs of the elderly, the sick, the children, the veterans and the most vulnerable by making massive cuts. At a time when the middle class already is disappearing, that is not only a grossly immoral position, it is bad economics.

We have a much better idea. Wall Street and the largest corporations in the country must begin to pay their fair share of taxes. They must not be able to continue hiding their profits offshore and shipping American jobs overseas to avoid taxes.

Here's the simple truth. You can't be an American company only when you want a massive bailout from the American people. You have also got to be an American company, and pay your fair share of taxes, as we struggle with the deficit and adequate funding for the needs of the American people. If Wall Street and corporate America don't agree, the next time they need a bailout let them go to the Cayman Islands, let them go to Bermuda, let them go to the Bahamas and let them ask those countries for corporate welfare.

Bernie Sanders (I-Vt.) was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history. Elected Mayor of Burlington, Vt., by 10 votes in 1981, he served four terms. Before his 1990 election as Vermont's at-large member in Congress, Sanders lectured at the John F. Kennedy School of Government at Harvard and at Hamilton College in upstate New York. Read more at his website.

February 07, 2013

We have written before regarding how electric utility companies try to get ratepayers rather than stockholders to pay for repairs to their equipment. In particular, we wrote previously how SDG&E appealed to the California Public Utility Commissioon (CPUC) for a rate increase after the disastrous Witch Creek fire:

"It’s standard operating procedure for San Diego based SEMPRA Energy, parent corporation of San Diego Gas and Electric, to delay costly maintenance and then, when there is a breakdown in the system such as the 2007 Witch Creek Fire which burned 198,000 acres, killed two people, injured 40 firefighters and destroyed more than 1,100 homes, to go to the California Public Utilities Commission (CPUC) and get a ruling that would allow them to charge the ratepayers for costs associated with that disaster."

Now Southern California Edison (SCE) and SDG&E, majority and minority owners, respectively, are using the same playbook with regard to the repairs undertaken at the San Onofre Nuclear Generating Station (SONGS). Almost exactly a year ago the plant was shut down because of a radiation leak. Now after extensive repairs SCE and SDG&E want to reopen one of SONG's reactors at 70% of full strength, and they want the ratepayers to pay for testing and repairs that took place in 2012 even though no power whatsoever was put on the grid in 2012. But this is nothing new. This is standard operating procedure for electric utilities all over the country. Case in point: Jersey Central Power and Light (JCP&L) after the Superstorm Sandy debacle.

The steam generators at SONGS were replaced in 2010 at a cost approaching a billion dollars for which the ratepayers have been paying. Those steam generators were supposed to last 20 years. Instead they lasted just two as a radiation leak was discovered in January 2012. SONGS did not generate power for the whole year of 2012, but ratepayers are still paying as if it did. The question is should ratepayers get a refund for paying for power they did not receive. In addition what about the billion dollars that was paid by ratepayers to replace the steam generators in 2010 which only lasted two years. Should ratepayers get reimbursed for that? Also should ratepayers pay another billion dollars to fix SONGS again or should it be relegated to the dustbin of history?

John Geesman, former member of the California Energy Commission and now an attorney with the watchdog group Alliance for the Nuclear Responsibility says that, until the Commission decides otherwise, ratepayers will still be on the hook for San Onofre – about $10 a month per household. “The real key from my perspective is whether the senior management at Edison, once they realize they’re playing with shareholder dollars rather than just something they pass through to ratepayers, will make faster decisions on San Onofre,” Geesman said. The question is whether San Onofre is cost effective at all at this stage or whether ratepayers should be footing the bill for a nuclear generating plant that is not even operating at full capacity.

But even cost considerations take second place to the issue of whether SONGS is safe at all and should even be operating so close to so many households in an earthquake prone area. Remember Fukushima? Many local citizens like San Clemente Green chairman Gary Headrick are adamant that San Onofre should not be reopened. Reopening the plant could endanger 8 million people living nearby in Carlsbad, San Clemente and even San Diego. Critics also say that San Onofre is not needed since we got through the summer of 2012, one of the hottest ever, without a power outage. At a meeting held to air local concerns, a local resident said, "We demand a full, transparent adjudicatory hearing and license amendment process, including an evidentiary hearing and sworn testimony and cross-examination. We cannot be [an] experiment waiting for more radiation leaks." Such a hearing would allow outside experts to testify.

It seems that SCE and SDG&E knew for some time that there were problems at San Onofre, but did little about them. Repair work that should have been undertaken to address vibration that led tubes to rub against each other and against support structures inside the generators was never undertaken. And this is typical for electric utilities that go by the philosophy that repair work is costly and detracts from the bottom line. Wall Street will not approve. That's why many utility companies are laying off workers whose job it is to replace aging equipment. In fact in August 2012 SCE announced plans to lay off more than 700 workers. Their attitude is 'let it break down; then we'll ask the PUC for a rate increase to make repairs.' This way it comes out of the ratepayers' hide and not the shareholders'. This maximizes stock prices and consequently CEO pay. Only this time we're not just talking about utility poles that should have been replaced snapping and cutting power lines; we're talking about nuclear radiation that could make the homes of 8 million people uninhabitable at the very least.

“The problem … with poorly maintained equipment is widespread. America is using up its infrastructure instead of rebuilding it. We grow slowly poorer as roads crumble, dams weaken on their way to deadly collapses, and the electric utilities siphon off funds customers pay for reliable power.

“One indicator of this? From 1983 to 2010, the number of Americans rose 36 percent, but the number of utility workers fell 15 percent. As the electric grid and the pipes carrying water and natural gas under high pressure age, more workers are needed for maintenance, repair and replacement, not fewer.”

As of January 31, 2013, California's Attorney General, Kamela Harris is getting involved as to whether ratepayers should pay the billions in repairs both in 2010 and 2012. She is joining the CPUC investigation that could either cost or save ratepayers a lot of money. Should the public get reimbursed for the large expenditures which seemingly have done little good? SCE wants the CPUC to wait until 2015 to make a decision. Why does SCE want the PUC to wait? Obviously, so they have even more chances to lobby the CPUC to make ratepayers not shareholders pay the costs of their blunders and so they can plan more travel junkets to Hawaii. Of course ratepayers would like to have their bills lowered now and to be reimbursed for energy they paid for but did not get.

It is well known that SCE has lobbied the CPUC for years. In fact they have paid for travel junkets for CPUC commissioners. I wrote previously that "... politicians who support the utility corporations’ agenda get their share of free travel as well. Each year more than a dozen California state lawmakers enjoy a free trip to Hawaii. In 2011 they checked into the luxurious Fairmont Kea Lani hotel in Maui. California law prohibits state lawmakers from taking more than $400 a year in gifts. But as ever there’s a loophole. The $13,000. trip to Maui for lawmakers was paid for by a nonprofit corporation, the Independent Voter Project (huh?), which is a front group for [PG&E and Southern California Edison.]"

The San Onofre nuclear power plant has been offline for a year, due to faulty steam generators, but ratepayers are still paying more than $50 million a month for the non existent power. The CPUC is considering whether ratepayers should be reimbursed and whether they should be reimbursed for the billion dollars in repairs they did a couple years ago or only for recent repairs. SCE has lobbied this one to death and it looks like the CPUC will only favor ratepayer reimbursement on a more limited basis.

Don Kelly of the Utility Consumers Action Network (UCAN) said in an interview on KPBS, "We need to decide whether we should spend another billion dollars repairing a plant that was repaired a couple of years ago for a billion dollars." And don't forget the billion dollars that was spent running the plant in 2012 that produced no electricity!

But the question should be asked: why doesn't Carlsbad, San Clemente and San Diego form a municipal utility district instead of relying on corporate owned utilities to generate their power? Why is the head of Southern California Edison paid more than $3.5 million a year while the general managers of the municipally owned LA Department of Water and Power and the Sacramento Municipal Utility District each earn around $350,000. These municipally owned utilities have for years provided reliable power at lower costs then corporate owned utilities.

The CPUC is currently investigating whether ratepayers should be on the hook for those costs and if they should get a retroactive refund for the time the plant has been offline. The CPUC has scheduled two hearings on Feb. 21 in Costa Mesa to get public comment about ratepayer issues.

January 08, 2013

Three trillion dollars a year. That's how much the wealthiest Americans avoid through the system of subsidies and schemes and sweet deals that deprive middle-class workers of their earned benefits. That's three times more than the deficit. That's enough for a full-time job for every middle-class household in America. Here are the distressing details:Protesters gathered in the Minnesota state capitol rotunda in April of 2010. (Fight Back! News/Kim DeFranco)

1. Tax Expenditures: $1.25 trillion

These subsidies from special deductions, exemptions, exclusions, credits, capital gains, and loopholes are estimated to be worth 7.4% of the GDP, or about $1.1 trillion. They largely benefit the richest taxpayers. Business subsidies bring the total to $1.25 trillion.

According to the IRS, 17 percent of taxes owed were not paid in 2006, leaving an underpayment of $450 billion. The largest share of that came from underreporting of income.

3. Tax Havens: up to $250 billion

(a) It's estimated that between $21 and $32 trillion is hidden offshore, untaxed.(b) 40% of the world's richest individuals are Americans. That's $8 to $12 trillion of the total.(c) The historical annual stock market return is 6%. That's a return of $480 to $720 billion.(d) The 20% to 35% tax loss amounts to a minimum of $96 billion, a maximum of $252 billion.

4. Corporate Taxes: $250 billion

For over 20 years, from 1987 to 2008, corporations paid an average of 22.5% in federal taxes. Since the recession, this has dropped to 10% -- even though their profits have doubled in less than ten years. The missing 12.5% on $2 trillion in profits amounts to $250 billion a year.

5. Financial Transaction Tax (FTT): $500 billion

The absence of an FTT constitutes tax avoidance. Not a penny of sales tax is paid on U.S. financial transactions, which have been estimated at about three quadrillion dollars annually, or three thousand times the deficit. No sales tax is paid despite the high-risk nature of "flash trading" that can lose entire pension funds in a few seconds.

This extremely regressive tax costs the richest Americans only a small fraction of what everyone else pays. If the 12.4% tax (half employer, half employee) were assessed on the full $3.84 trillion claimed by the richest 10% in 2006 (instead of on $1.43 trillion: $110,000 times 13 million payees), an additional $300 billion in revenue would have been realized.

7. Estate Tax: $100 billion

A repeal of the estate tax, which is designed to impact only the tiny percentage of Americans with multi-million dollar estates that have never been taxed, would cost the nation about $100 billion per year.

Conclusion

The total surpasses $3 trillion. The figures may be on the high end, and there may be some overlap, and wealthy Americans may argue that much of it is legal. But the system of loopholes and deductions and exclusions is a statement by the rich that they don't have to pay for their lopsided share of benefits, and that middle-income Americans should give up their own earned benefits to pay the country's bills.

And if tax avoidance is legal it's because the people with money have redefined 'legal.'

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

December 31, 2012

The Washington Post reported on December 27, 2012 that Victory Pharmaceuticals, headquartered in San Diego, was forced to pay $11.4 million to resolve Federal civil and criminal liabilities related to kickbacks to doctors in return for prescribing their drugs. Victory is a privately held company, founded in 2003, and is focused on acquiring, developing and marketing products to treat pain and related conditions. As it turns out, part of the marketing strategy was to offer kickbacks to doctors in return for prescribing its products.

The kickbacks included tickets to professional and collegiate sporting events, tickets to concerts and plays, spa outings, golf and ski outings, dinners at expensive restaurants, giving a doctor money to help make a house payment, paying for a doctor’s staff’s outing to a strip club including “lap dances” for the female staff and offering a doctor and his staff an all-expense paid trip to Las Vegas. A former sales representative for Victory, Chad Miller, blew the whistle on them and received $1.7 million for his efforts as a whistleblower.

Chad Miller was represented by Boston attorney, Joseph M. Makalusky, who said the following:

“By bribing physicians with cash, concert tickets, tickets to sporting events, dinners and other inducements, Victory Pharma compromised what is supposed to be the physician’s independent and sound medical judgment when they prescribe drugs to their patients. The practice of providing these kickbacks, which puts a patient’s health secondary to profits, is a clear violation of the False Claims Act. I am proud that my client had the courage to step forward and put an end to this fraud, and I hope that this case and others like it [embolden] would-be whistleblowers to do the same.”

Its products include NAPRELAN tablets for the treatment of rheumatoid arthritis, osteoarthritis, ankylosing spondylitis, tendinitis, bursitis, and acute gout, as well as for the relief of mild to moderate pain and treatment of primary dysmenorrheal and XODOL for the relief of moderate to moderately severe pain.

The Justice Department has made fraud and abuse a key area of focus under the Obama administration, collecting more than $4.9 billion in the fiscal year ended Sept. 30. The Victory Pharma agreement comes on the heels of two high-dollar settlements. Last week, biotech giant Amgen agreed to pay $762 million over its marketing of the anemia drug Aranesp, and drugmaker Sanofi US agreed to pay $109 million to resolve anti-kickback allegations relating to its marketing practices.

Victory Pharma is no longer in business after selling its nine marketed products in July 2011 to Shionogi Inc based in Osaka, Japan. Shionogi Inc paid over $118 million for the products. After paying a $11.4 million fine, Victory Pharma's principals have a nice pile of cash left over. They can laugh all the way to the bank or all the way to Las Vegas. Maybe a few doctors are laughing too.

December 15, 2012

States, counties and cities are in a race to the bottom because they are giving away taxpayer dollars to provide incentives for corporations to locate withing their boundaries. There's a fierce competition going on and corporations are playing one region off against another. Whichever one comes up with the largest package of cash grants and loans, sales tax breaks, income tax credits and exemptions, free services, and property tax abatements wins. Corporations hire people whose job it is to get them the best package. Mayors and Governors desperate for jobs for their citizens are giving away the store with the consequence that schools, parks and police and fire services are underfunded. City employees are forced to take pay and pension cuts in order that corporations can report to shareholders that they got the best possible deal.

And there is no guarantee that once these corporations have received said financial incentives that they will ever provide the jobs or that they won't pull up stakes after a short period in order to take advantage of even better incentives elsewhere. According to a New York Times investigation, states, counties and cities in the US are giving up more than $80 billion per year in order to get corporations to build plants or even offices in their areas. The beneficiaries encompass oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains - even dental offices, architect firms and wineries!

There are mayors and governors who are desperate to create jobs and who don't have the expertise to negotiate with corporations or even fact check what they are telling them. Corporations demanding subsidies threatened to move jobs overseas if they did not get subsidies in the United States. The state of Texas awards more incentives, over $19 billion a year, than any other state. As a consequence, Texas has the most underfunded school system in the whole country. Recently there was a border war between Kansas and Missouri. Last year Kansas recruited AMC Entertainment away from Missouri. This required a move of only a few miles from one side of the border to the other. In return Missouri lured Applebee's headquarters across the border from Kansas. The workers just had a littler farther to commute, that's all.

General Motors pushed hard for tax breaks in Ypsilanti Township, Mich. Some $200 million later, this is what remains.

The main victims of these wars between states and municipalities are the school systems which become underfunded by virtue of the loss in tax revenues because money is diverted from public education to corporations. Last year states cut public services and raised taxes by a collective $156 billion. Politicians want to be able to claim that they've brought new jobs into their state. The government of South Carolina recently took on a $218 million debt in order to get Boeing to locate a plant there and gave the company tax breaks for ten years. The state of Michigan gave General Motors $779 million in tax credits in 2009 just a month after GM received a $50 billion Federal bailout and decided to close seven plants there. These are just a few samplings of the horror stories out there that result from the absurd competition going on among various political entities and jurisdictions.

Cabela's sporting goods chain put the Mom and Pop sporting goods store, Weaknecht's, out of business in Hamburg, Pennsylvania based on tax giveaways. They had the local politicians in surrounding counties in Delaware, Pennsylvania and New Jersey competing with each other to see who was willing to pay the most in tribute to the sporting goods chain. They wanted at least $32 million. At this rate subsidies would cover more than half the cost of construction. Cabela's wanted an exemption from paying property taxes. But that wasn't all. They also wanted to pocket all the sales tax. According to David Cay Johnston in the book, Free Lunch:

"The tribute Cabela's demanded from Hamburg amounted to roughly $8000 for each man, woman and child in town. Hamburg was not a unique example, but part of a strategy to build Cabela's stores across the country. Multiply the tribute in Hamburg by as many struggling little towns off the interstates as Cabela's has plans for retail stores and the figures balloon. Cabela's plans to build stores until, like Holiday Inns, it is everywhere. Imagine how many of those towns are run by burghers who could be persuaded to opt for hope and forget about reason. To become the dominant outdoor retailer Cabela's would need only to find a few dozen or, if it could, a few hundred towns whose political leaders were willing to pay tribute. By doing so it could cut the risks of expansion and gain an advantage over business owners like Jim Weaknecht who offered better service and lower prices. Mining local and state governments for tribute could even turn into a business more lucrative for Cabela's than actually selling sporting goods."

President Bush and Dick Cheney campaigned at Cabela's in 2004 and Dick Cheney let on that it was his favorite place to shop. Presumably, it's where he bought the gun that shot his hunting companion in the face. Dick and Mary Cabela gave $11,000. to the Bush campaign.

Since he closed his store, Jim Weaknecht has worked as an assistant manager at a grocery store chain. He holds down a second job to in order to make ends meet, and sent his wife out to work for the first time instead of caring for the children. Cabela's offered him a job for $13.50 an hour.

In California Twitter cashed in on $22 million in payroll taxes after it threatened to leave San Francisco last year. It really didn't need the money. A Saudi prince invested $300. million and a private consortium, another $800. million. But Twitter was able to report to shareholders that it had made them as much short term money as it possibly could have. While the two investors got Twitter equity, the city of San Francisco got a hollow promise that Twitter would stay put. Of course there would be no consequences if it didn't. The

A playground in the Manor school district in Texas. In the background is a plant owned by Samsung, which has been awarded more than $231 million in incentives.

Like many places, San Francisco has been cutting its budget. Public parks have lost about $12 million in recent years, though workers at Twitter will not lack for greenery. The company’s plush new office has a rooftop garden with great views and amenities. Enjoying the perks, one employee sent out a tweet: “Tanned on Twitter’s new roof deck this morning as some dude served me smoothie shots. This is real life?”

Rick Perry likes to brag about all the jobs he's creating in Texas even though the state has the third highest proportion of hourly jobs paying at or below minimum wage and the 11th highest poverty rate among states.

During a visit to San Diego, he bragged to local officials that about a third of the companies moving to Texas were from California according to Ruben Barrales, the chief executive of the San Diego Regional Chamber of Commerce. Mr. Barrales said that Rick Perry visited San Diego quite often and let companies know that if they chose to relocate, Texas would greet them with open arms. When he was asked if he had qualms about taking jobs from other states, Rick Perry said, “Competition is what drives this country.”

California spends at least $4.17 billion per year on incentive programs, according to the most recent data available. That is roughly:

Twitter and Tesla Motors got a combined $42 million in corporate income tax credits, rebates or reductions from the state. Northrop Grumman got $9.8 million in 13 free services from the state. Hyatt Corporation got $3.07 million for 2 free services statewide. Raytheon got $2.74 million for 6 free services. The National Alliance of Business has received $1.08 million for two free services. Dunn-Edwards Corporation received $809,030 for 4 free services. Exxon Mobil received $596,596 for 1 free service.

The following is a not even an exhaustive list of subsidies to corporations in San Diego County:

Foundation College, LLC has received two grants worth $2.95 million for free services. Aetna, Inc has received $2.82 for 4 free services. Foundation Foods LLC has received $2.35 million for 3 free services. Comprehensive Training Systems has received $1.17 million for 4 free services. Prime Healthcare Services received $749,658 for 2 free services. BAE Systems received $688,563 for 5 free services. General Dynamics received $583,364 for 1 free service. Rohr, Inc received $459,432 for 2 free services. Invitrogen Corporation received $387,810 for 1 free service. Coxcom, Inc received $343,477. for 1 free service. Calloway Golf received $338,016 for 2 free services.

The following have received subsidies for various amounts of free services:

Finally, Energy Innovations got $3.5 million in cash grants, loans or loan guarantees from the city of Poway and then went out of business costing 70 employees their jobs.

And it goes on and on for 90 pages! There are dental groups, sheet metal fabricators, platers, architects, cab companies, office products companies, engineering companies, bamboo companies, filter companies etc. You name it! If you're a corporation and you're not getting a piece of the government pie, you're a total LOSER.

One notable exception to this list - Qualcomm, San Diego's largest employer and a Fortune 400 company. I guess they figure they're profitable enough to pay their own way, but that hasn't stopped the likes of Exxon Mobil or Chevron from seeking and accepting taxpayer subsidies. My hat's off to Qualcomm for not picking the public's pocket.

Whew!!! When you add all this up, pretty soon you're talking about real money! Money that could have been spent on schools, parks and public services - and this is only a partial list! I challenge a commenter to add it all up and come up wth a total for San Diego County. I don't have the time or patience to do it.

This represents corporate welfare or another term for it is corporate socialism. So much for the free market. Do you think that this amount of money could have been spent on schools, parks, police, firemen and filling potholes instead? Why the San Diego Free Press would be happy to receive $50,000 in free services. Do you think that's possible? Don't bet on it.

The only solution to this mess is a national economic policy that would prevent this race to the bottom and ridiculous competition among states and local governments. The US should have an industrial policy that would promote trade and restrict competition for plant location. Obama has mentioned a cabinet level position of Secretary of Business. That might be a good start.

October 20, 2012

It's standard operating procedure for San Diego based SEMPRA Energy, parent corporation of San Diego Gas and Electric, to delay costly maintenance and then, when there is a breakdown in the system such as the 2007 Witch Creek Fire which burned 198,000 acres, killed two people, injured 40 firefighters and destroyed more than 1,100 homes, to go to the California Public Utilities Commission (CPUC) and get a ruling that would allow them to charge the ratepayers for costs associated with that disaster. This is standard business procedure for SEMPRA which has the CPUC in the palm of its hands. They have played this game time and again.

The problem is aging infrastructure, infrastructure that SEMPRA has a responsibility to maintain and upgrade. But upgrading infrastructure and maintaining its power and gas lines is expensive and subtracts from its bottom line profit margins. So SEMPRA's strategy is very simple. Don't spend the money on maintenance and then, when a disaster happens, go to the CPUC whose members it has wined and dined, and ask for a rate increase so that the ratepayers, not SEMPRA, pays for the costs associated with the disaster such as paying off homeowners whose homes have been burned down in the fire. Hey, it's cheaper than doing routine maintenance.

SEMPRA's problems in the Witch Creek fire arose because its insurance policy was not sufficient to cover all the costs of the fire. Total costs of the fire are in the $2 billion range with insurance only covering $1.1 billion. A state inquiry found that SDG&E lines ignited the 2007 firestorms because the company did not properly design, build and maintain its equipment. So naturally instead of SEMPRA hitting up its stockholders for the difference, it expects its ratepayers, many of whom were actual victims of the fire, to pay the bill. It has filed with the CPUC for approval for a rate increase on the grounds that it is needed to pay for the fire that SDG&E itself caused due to lack of maintenance and negligence. An attorney for UCAN (Utility Consumers' Action Network) said it works out to about $356 more a year for an average utility customer. How could the California PUC make it possible for SEMPRA to charge its ratepayers for its own negligence which caused a large swath of death and destruction in San Diego County in 2007?

Simple. The CPUC is in the pocket of not only SEMPRA but the other big California utilities like Pacific Gas and Electric based in San Francisco. For example, commissioners have twice approved rate increases in the tens of millions of dollars for SDG&E customers to cover the company’s higher wildfire liability insurance costs. CPUC members and staffers have had paid vacations courtesy of SEMPRA, Pacific Gas & Electric and Southern California Edison. After Mike Peevey ended his term as President of the CPUC, he helped to create the California Public Utilities Commisssion Foundation which held a fund-raising dinner where tables sold for $20,000. each. Among the buyers were San Diego Gas & Electric, child of parent SEMPRA. Up until 2000, the CPUC was regarded as the best utility regulatory body in the nation, but under Peevey it became the utility corporations' best friend. Par for the course for the Bush years.

And politicians who support the utility corporations' agenda get their share of free travel as well. Each year more than a dozen California state lawmakers enjoy a free trip to Hawaii. In 2011 they checked into the luxurious Fairmont Kea Lani hotal in Maui. California law prohibits state lawmakers from taking more than $400 a year in gifts. But as ever there's a loophole. The $13,000. trip to Maui per lawmaker was paid for by this loophole which in this case is a nonprofit corporation, the Independent Voter Project (huh?), which was a front group for the utility companies. San Diego politicians are among other recipients of SEMPRA's largesse. Bob Filner is the only mayoral candidate who has not received money from SDG&E, its parent company SEMPRA, or their employees. Nathan Fletcher, Bonnie Dumanis and Carl DeMaio have all taken SDG&E or SEMPRA money, but claim that it hasn't affected their judgment or proclivities. Yeah, sure.

But free trips for regulators and cozying up to lawmakers is not the only way utility corporations screw the public. There's another way. While your payroll and income taxes are taken out of your paycheck before you get paid, Congress lets corporations earn money today and defer taxes till years later. For example, Pacific Gas & Electric, a company responsible for the 2010 San Bruno gas line explosion which killed 8 people and destroyed 38 homes, had about $450 million of deferred taxes in its ADIT (Accumulated Deferred Income Tax account) in 2011 when it filed with the CPUC for a rate hike. The filing explained how long it holds on to this money before actually paying the government. In some cases it was 37 years. Meanwhile, inflation has reduced the value of the money it owes and investment has increased it. From 1954 to 2006, corporate-owned electric utilities got tax benefits worth $450 billion. So while you pay your taxes upfront, utilities can delay paying them for up to 37 years.

It's important to realize that not only does SEMPRA want San Diego ratepayers to pay for the 2007 Witch Creek fires; they also want the CPUC to rule that ratepayers should pay for all future fires. “The people of San Diego County will rise up if they find out they’re going to be charged for past fires, future fires, negligent behavior or not," said Diane Conklin, of the citizens watchdog group Mussey Grade Road Alliance. "They will be furious.”

It's not like SEMPRA thinks it has the CPUC in their hip pocket or anything. Profits are maximized by deferring maintenance, waiting for disasters to happen and then gouging ratepayers and taxpayers, average citizens, to pay for it. David Cay Johnston in his newly published book, The Fine Print ,says:

No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private government-approved mechanisms by which price gouging is employed to redistribute income upward. When news breaks about one company buying another, the focus is almost always on the bottom line and how shareholders will benefit from higher prices and less competition; much less is said about added costs for customers as competition wanes. This powerful yet subtle bias appeals to advertisers such as mutual funds and other financial services companies who wish to address investors.

August 29, 2012

In a quest to eat a healthier diet, I made smoothies containing a couple scoops of a soy protein product I bought at Trader Joe's. I also started eating a lot of berries, high in anti-oxidants, which are supposed to be good for you. Then one day I woke up and realized that the soy I had be eating was actually genetically modified (GMO) soy created by the Monsanto Corporation for the sole purpose of being resistant to Monsanto's Roundup, a powerful herbicide which will kill every plant in a soybean field except genetically modified soy plants. So the soy I had been eating was not only GMO soy containing herbicide within its seeds, but it had been drenched in a powerful herbicide prior to having been harvested and brought to market.

Same thing for the berries. They are highly sprayed with pesticides and herbicides so that whatever healthful properties they may have possessed are completely compromised by the poisons being ingested. Grapes are the most highly sprayed product out there. Even drinking wine unless it's organic gives you a high dose of toxicity. Doctors may tell you that it is healthy to have a glass of wine with dinner, but unless it's organic wine, you'r getting a dose of pesticide and herbicide along with it. In 2010 411,828 pounds of Roundupwere applied to wine grapes in California. A 2009 study found that even one glass of wine a day increased women's chances of getting cancer. It seems that the anti-oxidant cancer fighting effects of wine are counterbalanced by the pesticide and herbicide laced grapes that it is made from.

The Bush administration approved the use of methyl iodide on strawberries despite scientific evidence that it wasn't safe for human consumption. Unless you are buying organic strawberries you are getting a dose of it every time you eat them. Arnold Swarzenegger also approved its use in California in the final days of his administration despite the fact that 54 eminent scientists including six Nobel Laureates testified that methyl iodide is one of the most toxic chemicals on earth.This chemical is getting into California's food and water supplies and causing harm to agricultural communities surrounding the fields where it's being used, not to mention the workers who pick the strawberries. Governor Brown has said he will take a "fresh look" at the chemical, but so far your best protection is to eat organic berries be they strawberries, raspberries, blueberries or blackberries. Each year nearly 1 billion pounds of pesticides are sprayed on the fields and orchards of America.

The latest development in the Monsanto Roundup nightmare is that, despite the best efforts of corporate America to have their soybean fields weed free so that they can be harvested with $185,000 tractors and little hired labor maximizing profits, weeds themselves have evolved to be "Roundup Ready". These super weeds cannot be extinguished with Roundup despite repeated sprayings. They are threatening to take over American fields. So now we're in an arms race between Monsanto which is developing even more potent herbicides to be sprayed on crops which the American people are destined to ingest and the super weeds which continue to evolve. Roundup Ready GMO crops now account for 90% of US soybeans and 70% of US corn. These food products are what you are buying at Ralphs, Vons, Safeway and other American super markets as well as what you are eating at most restaurants.

Dow Chemical Corporation has come up with a GMO corn variety called Enlist which has been specifically developed to not be killed by even more potent chemicals developed to kill the super weeds. And the chemical industry pressures farmers to use their products and drench their fields with pesticides rather than grow organically and use natural methods of weed control because there is no money in it for them if farmers abandon chemically based weed control. But it's not only super weeds that we need to be concerned about. Super bugs and insects have evolved that are resistant to Roundup Ready GMO corn!

Instead of reducing the need for manual labor which the introduction of Roundup Ready crops promised, we are now seeing farmers hiring workers to manually go through fields hoeing out the giant pigweeds and ragweeds that Roundup is not able to kill. Add to this the bad news that global warming is killing off crops for lack of water and you have a real dilemma.

The way I used to feel about the American food supply was that for the most part it wouldn't kill you immediately. It might take 30 or 40 years until you collected enough chemical toxins in your liver or pancreas to instigate a siege of cancer. However, there is a growing body of evidence that it is becoming increasingly likely that you will be killed more or less immediately if you are unlucky enough to eat meat contaminated with e coli or salmonella. Each year 1 in 6 Americans gets sick from a foodborne disease. According to Center for Disease Control (CDC) estimates, more than 125,000 Americans are hospitalized and 3,000 die each year from microbial pathogens including salmonella, e coli, and listeria. Estimates of the cost of foodborne illness in terms of health care and lost productivity exceed $75 billion a year. So while your chances of being killed or injured due to a car accident are greater (40,000 deaths and 3 million injured per year), your chances of getting sick from a foodborne disease (1 in 6) is even greater than your chances of being injured in a car crash (1 in 100). And incidences of Salmonella in particular are increasing year over year. In 2010 FoodNet detected 8,256 cases of salmonella poisoning, with 2,290 hospitalizations and 29 deaths.

In Fast Food Nation, Eric Schlosser explains why foodborne disease is on the increase. Basically, it's because of the unsanitary conditions in which corporate farmers raise, slaughter and process animals for human consumption. Chickens are kept in such crowded quarters that workers have to go through every day and weed out the dead ones throwing them in the dumpster. They are hardly allowed to turn around while they are being fed a diet of antibiotics and hormones which will fatten them to the slaughter in the least number of days. Beef cows are slaughtered and processed by low wage workers, mainly illegal immigrants, unfamiliar with proper food handling procedures, who work on sped up assembly lines where numerous mistakes are made with regard to sanitation and the workers' own safety.

In the slaughtering and processing of cows, it is very important that fecal material does not contaminate the meat, but a USDA study found that 78.6 percent of the ground beef contained microbes that are spread primarily by fecal material. This is what is served in fast food hamburgers as well as the hamburger you buy at the supermarket. As Schlosser observes," [There is] a simple explanation for why eating a hamburger can now make you seriously ill: There is shit in the meat." If a cow's hide has been inadequately cleaned, chunks of manure can fall off it into the meat. The contents of a cow's digestive system can get onto the meat. Inexperienced "gutters" spill manure quite often. Workers forget to clean and disinfect their knives. A contaminated knife spreads germs to everything it touches. The overworked, often illiterate workers in the nation's slaughterhouses do not understand the importance of good hygeine. They drop meat on the floor and place it right back on the conveyor belt.

In 1993 San Diego based Jack in the Box was implicated in a breakout of hemolytic uremic syndrome. Kids in Seattle were being hospitalized at an alarming rate. The outbreak was traced to undercooked hamburgers at a local Jack in the Box restaurant which disclosed the prescence of e coli 0157:H7 in the hamburgers. More than 700 people in four states were sickened; more than 200, hospitalized and 4 died. Lauren Beth Rudolph ate a hamburger at a San Diego Jack in the Box. She was admitted to hospital on Christmas Eve in terrible pain. She died in her mother's arms on December 28, 1992. She was six years old.

A government official compared the sanitary conditions in a modern feedlot to those in a crowded European city during the Middle Ages, when people dumped their chamber pots out the window, raw sewage ran in the streets, and epidemics raged. Cattle packed in feedlots live in pools of manure, eat dirty food and drink dirty water. Feedlots have become efficient mechanisms for circulating e coli. Nevertheless, a Federal judge allowed Supreme Beef Processors to sell beef to schools for school lunches even after the plant was shut down for Salmonella contamination in 1999.

At present the nation's 200,000 fast food restaurants are not subject to any oversight from Federal health authorities. Far more Americans are severely harmed every year by food poisoning than by illegal drug use. People who smoke crack know the inherent dangers; people who eat hamburgers usually don't. And most of the harm is done to children. The American culture of deregulation has done more to protect the meat packing industry than it has done to protect Americans who consume their products.

The American food supply both in terms of vegetables and meats has been compromised by herbicides, pesticides, hormones, antibiotics and preservatives. The only way that you can protect yourself is to eat and drink organic products. Even there you have to believe that the label "organic" means what it says. With lack of oversight who knows how many cheaters there are who are claiming their products are organic when they really aren't. And the food industry is lobbying to downgrade what the meaning of organic is so they can label their products as organic including GMO products. In Europe GMO products have been outlawed for years although the food industry continues to chip away at this state of affairs and argue for their introduction

One wonders whether the death of Apple founder Steve Jobs due to pancreatic cancer had anything to do with his dietary habits. Jobs was a vegan so you might assume he ate large quantities of soy products and vegetables. Were his dietary choices organic? If not were the very products he and others consumed, while thinking that they were eating healthfully, actually contributing to their long term demise. It's something to think about. Health food is not alway healthy.

August 18, 2012

"Our nation’s tax code has become a powerful enabler of bloated CEO pay."

- Common Dreams staff

While austerity hits everyday Americans, seemingly scarce tax dollars are being squeezed from their pockets to fund exorbitant CEO pay, according to a report released Thursday from the Institute for Policy Studies (IPS).

image: Institute for Policy Studies

According to the thinktank's 19th consecutive Executive Excess report, The CEO Hands in Uncle Sam's Pocket, "Our nation’s tax code has become a powerful enabler of bloated CEO pay."

For example, the report states that "26 U.S. corporations last year gave their CEO more than they paid in taxes to Uncle Sam." The CEOs at those corporations received a staggering $20.4 million in average total compensation -- a 23% increase above the previous year.

Among the CEOs detailed in IPS's report are these five who received more in compensation than their corporations paid in federal income tax:

Name of CEO

Corporation

2011 CEO Compensation

2011 Federal Income Tax Bottom Line for Corporation

Vikram Pandit

Citigroup

$14.9 million

$144 million refund

Miles D. White

Abbott Laboratories

$19.0 million

$586 million refund

Randall Stephenson

AT&T

$18.7 million

$420 million refund

James McNerney

Boeing

$18.4 million

$605 million refund

Robert Benmosche

American International Group

$13.9 million

$208 million refund

Aubrey McClendon

Chesapeake Energy

$17.9 million

$13 million payment

Corporations are also dodging taxes through the use of tax havens such as Cayman Islands and Bermuda through which "corporations can shift around profits, avoid accountability, and reduce tax obligations." The report found 537 tax-haven subsidiaries operating last year from the 26 corporations paying more in CEO compensation than in federal income taxes.

In addition to gaming the system to allow excessive CEO compensation, tax loopholes and the Bush tax cuts are allowing these corporations to save millions. The report states that the Bush tax cuts allowed 57 CEOs to save more than $1 million on their personal income tax bills. And the top five 2011 beneficiaries of the loophole that allows no limit on how much “performance-based" compensation corporations can deduct from their taxes "had a combined $232 million in deductible 'performance-based' pay. Absent this loophole, the tax bills for these companies would have jumped $81 million, or an average of more than $16 million per CEO." With the loophole, however, corporations are essentially incentivized to give CEOs high "performance-based" pay.

The chart from the report lists some of the CEOs making millions from the Bush tax cuts:

The four most direct tax subsidies for excessive executive pay is costing taxpayers $14.4 billion per year, the report states -- an amount that could be used to reinvigorate the public sector by providing services such as health care for 7,370,673 low-income children for one year, or VA medical care for 1,843,510 veterans for one year or 241,593 clean-energy jobs for one year.

Setting up an offshore corporation is not difficult, nor is it expensive. For $650. you can set up an offshore corporation in Belize or the Seychelles Islands or the Cayman Islands among many other places, and for a slight additional charge it can be linked to a bank account in a jurisdiction which is absolutely tax free and completely confidential, in other words a tax haven. Furthermore, the shell company can be in one offshore jurisdiction and the bank account in another making any transactions even more difficult to track. These corporations and bank accounts are guaranteed absolute confidentiality. No one can inquire and obtain any information about them including the US government. It's even against the law to inquire about these shell corporations in the Cayman Islands. You could get jail time! For this reason offshore companies and bank accounts are proliferating. As is well known, Mitt Romney and Bain Capital have partaken of these completely legal schemes to hide money and have it grow tax free. They've set up hundreds of these corporations and bank accounts. At $650. a pop, they are ridiculously cheap for the average multimillionaire. All you have to do is google "offshore company registration" and you will come up with thousands of companies who can assist you in this process. Setting up the offshore corporation can be done in 24 hours and the only documentation required is a scanned notarized passport and a utility bill all sent by email.

There is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as "a Bermuda corporation wholly owned by W. Mitt Romney." He set it up in 1997, then transferred it to his wife’s blind trust before he was inaugurated as Massachusetts’ governor. The director and president of this entity is R. Bradford Malt, Romney’s personal lawyer. However, Romney could have gotten by without listing anyone he knew as director. Companies that help set up offshore corporations also provide - for an extra $600. or so - what are called "nominee services" They will provide you with a Board of Directors and shareholders as well if you choose. That way anyone who possibly might snoop would find out nothing about the actual owners and Board. A private side agreement guarantees that the person or corporation that set things up remains firmly in control.

Sankaty was part of a number of similarly named hedge funds run by Bain Capital. The offshore company was used in Bain's $1 billion takeover of Domino's Pizza more than a decade ago. Since Sankaty is based in Bermuda, a tax free jurisdiction, it would pay no income or capital gains taxes if Domino's were to be later sold at a profit. The use of offshore companies such as Sankaty is allowed under U.S. tax laws. They are typically set up as shell corporations by private equity and hedge funds to route investments from large foreign and institutional investors, such as large pension plans, into corporate takeovers. The investors gain U.S. tax advantages by passing their funds through the offshore "blocker" corporations, avoiding a high 35 percent tax since the IRS considers the earnings to be "unrelated business income." And Romney can fully exploit the "carried interest" loophole in the tax code so if worse comes to worse, he pays no more than 15%. If Romney's offshore corporation makes a profit in a tax free jurisdiction such as Bermuda, he pays no taxes, zero, zilch.

Romney failed to list Sankaty High Yield on several financial disclosures, even though such a closely held entity would not qualify as an “excepted investment fund”. He finally included it on his 2010 tax return, the one he released. That's the only reason we know about it. Even after examining that return, we have no idea what is in this company's secret bank account, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in jurisdictions where there are no taxes required and absolute confidentiality. Any offshore shell corporation is legally a person and has the right to set up, buy and sell other companies. They can also transfer assets from one company to another creating a labyrinthine maze of complex corporate entities which no government could hope to unravel. One corporation can own another and monies can be funneled between them so that any investigation by the US government to try and track monies for tax purposes becomes virtually impossible. The government would have to file suits with the governments in each different jurisdiction because that is the only possible way confidentiaity can be circumvented. The companies that set up the shell corporations and bank accounts aren't required by law to release any information even to the US government. A full 55 pages in Romney's 2010 return are devoted to reporting his transactions with foreign entities.

The "nominee services" offered by these companies that set up offshore corporations and bank accounts make it possible to hide any involvement by the private equity fund actually in charge. Many Belize based corporations have elected to have "Desiree" as their director. It is possible for Desiree to be the company's sole director and also the company's sole shareholder at the same time. How she can possibly keep up with her duties as director and shareholder of thousands of corporations is beyond me. Another service that companies such as Worldwide Incorporation Services provide is what are known as "shelf companies." These are companies that have been set up years ago just waiting for someone to come along and claim them, someone who needs the gravitas of a corporation that has been around for years. You have your choice of many names to choose from such as Technologic or Advantacorp among many others.

Romney still has a financial interest in Bain Capital and still receives income from it—recently he revealed more than $2 million in new Bain income. The firm today has at least 138 offshore corporations organized in the Cayman Islands, and Romney himself has personal interests in at least 12 which are worth as much as $30 million. All of these firms have absolute confidentiality agreements. No wonder he doesn't want to make his tax returns public. It would ruin everything he's so painstakingly set up. The Romney campaign insists he saves nothing on his taxes by using offshore shell corporations and tax havens, but there is no way to check this. And the real question is not whether he is cheating on taxes, but how much money is he saving by using legal tax loopholes that allow him to use shell corporations in tax free jurisdictions such as the Cayman Islands to conduct his business.

Although Romney made a fool of himself on his recent foreign policy swing through Great Britain and Israel with numerous gaffes, he has a much worse reputation in a country he purposefully left off his itinerary: Italy. That’s because Bain Capital under Romney as chief executive officer, made about $1 billion in a leveraged buyout 12 years ago while paying zero taxes to a country deeply in debt and badly in need of tax revenue. Bain had one of its shell companies based in Luxembourg buy a telephone directory company from the Italian government. Since the shell company controlled by Bain and Romney was in Luxembourg, a no tax jurisdiction, Romney made a fortune while burning Italian tax payers. But this was all perfectly legal. Romney himself earned as much as $60 million from the Italian directory sale of Seat Pagine Gialle SpA. The deal turned into one of the biggest windfalls of his career. Like most of Romney's deals, he became wealthy at the expense of someone else. No real wealth was ever created. It was just transferred from someone less sophisticated to Romney who exploited every loophole in international law.

“Mitt Romney and Bain played the role of successful financial speculators at the peril of the Italian government and the small stock-market investors who were burned by the sharp decline in Seat (PG) shares,” said Giovanni Pons, a journalist for la Repubblica and co-author of “L’Affare Telecom” (2002), which recounts details of the Bain deal.

The use of offshore subsidiaries to avoid taxes has been standard practice for private equity firms such as Bain, as well as other big U.S. companies such as Google Inc., Facebook Inc. and Cisco Systems Inc.

Bain sold the company back to Telecom Italia in a deal which has been called "the beginning of the destruction of Italian industry" since Telecom Italia's share value eventually declined 90%. Telecom Italia then sold the yellow pages directory to another group of private equity firms. Bain moved the profits from the sale of Seat Pagine Gialle through a number of shell companies in Luxembourg with the result that the profits were repatriated to the US tax free. That is a trick that not even the large tech companies like Qualcomm and Microsoft are able to do. Those companies are begging the US for a tax holiday so they can repatriate billions in profits, which would normally be taxed at 25%, now sitting in foreign banks.

All in all, thousands of US corporations - not just Bain - have set up thousands of offshore shell companies linked to offshore bank accounts. There are thousands of offshore companies willing and able to assist them in this process requiring nothing more than a copy of a scanned notarized passport and a utility bill. The whole process can be done with one phone call and a couple of emails and can be completed in as little as 24 hours for a cost of around $600. The companies assure their customers of "absolute confidentiality" and apologize for asking for the notarized passport as required by international law. There are some countries, however, that do not require even that. The country with the lowest standards for setting up a shell corporation, even lower than Somalia, is ... guess who ... the United States! Planet Money host Chana Joffe-Walt set up a Delaware corporation called Delawho? for a nominal fee. They only required the name of the director, the name of the corporation and the address where she wanted the documents to be sent. No notarized passport or nothing!

July 07, 2012

Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline — the largest pharmaceutical settlement in history — for improper marketing prescription drugs in the late 1990s to the mid-2000s.

The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes, including remedying sexual dysfunction; and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.

$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone, according to IMS Health, a data research firm — so the penalty could almost be considered a cost of doing business.

Besides, to the extent the penalty affects Glaxo’s profits and its share price, the wrong people will be feeling the financial pain. Most of today’s Glaxo shareholders bought into the company after the illegal profits were already built into the prices they paid for their shares.

Not a single executive has been charged — even though some charges against the company are criminal. Glaxo’s current CEO came on board after all this happened. Glaxo has agreed to reclaim the bonuses of any executives who engaged in or supervised illegal behavior, but the company hasn’t officially admitted to any wrongdoing – and without legal charges against any of executive it’s impossible to know whether Glaxo will follow through.

The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. In May, Abbott Laboratories settled for $1.6 billion over its wrongful marketing of an antipsychotic. And an agreement with Johnson & Johnson is said to be imminent over its marketing of another antipsychotic, which could result in a fine of as much as $2 billion.

The Department says the prosecutions are well worth the effort. By one estimate it’s recovered more than $15 for every $1 it’s spent.

But what’s the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable?

The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.

An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can’t buy them and shouldn’t be influencing doctor’s decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.

Finally, there’s no good reason why doctors should be allowed to accept any perks at all from companies whose drugs they write prescriptions for. It’s an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don’t work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.

The middle class is being hollowed out; increasingly, there are the super-super-rich, and there are the rest of us.

June 29, 2012 | This week, David Segal at the New York Times broke the news to America that not only was Apple — the computer and gadget manufacturer formerly seen as a symbol of good old American ingenuity — making its profits on the backs of abused factory workers in China, but also on poorly paid store employees here in the US.

Apple store workers, he wrote, make up a large majority of Apple’s US workforce—30,000 out of 43,000 employees in this country—and they make about $25,000 a year, or about $12 an hour.

“The discrepancy between Apple’s profits/executive pay and its compensation to its workers is a particularly glaring example of what is occurring in the wider economy,” Mishel writes.

And he’s right. Also this week, Henry Blodget at Business Insider posted three charts that show just how out of whack our economic system really is. Corporate profits are now at an all-time high, while wages as a percent of the economy are at an all-time low, and fewer Americans are employed than at any time in the previous three decades.

Companies like Apple are squeezing their workers, leaving them to live on less, while lavishing pay and benefits on their executives. The death of lionized Apple chief Steve Jobs seems to have opened a floodgate of reporting and criticism of the company’s labor practices, but all this really proves is that Jobs and his empire are no better than, and no different from the rest of the US business elite. Just like everyone else, they’re taking their profits directly out of workers’ pockets.

“One reason companies are so profitable is that they’re paying employees less than they ever have as a share ofGDP. And that, in turn, is one reason the economy is so weak: Those ‘wages’ are other companies’ revenue,” Blodget points out. And high unemployment makes workers willing to accept those poverty wages. When you’re desperate for a job, any job is better than nothing.

Right-wingers from Michele Bachmann to Ron Paul have used high unemployment as an opportunity to call for eliminating the minimum wage entirely, letting companies decide just how little they think their workers are worth. Companies love to claim that if they’re forced to pay more, they’ll have to eliminate jobs, but these numbers show that actually, they’re able to keep wages low and refuse to hire; available cheap labor supposedly leads to more job creation, but it’s the hollow, gnawing fear created by ongoing high unemployment that keeps wages low and workers passive. And the rich are getting ever richer.

The “recession” is over—officially it ended in 2009, but for most people the pain was just beginning. Real incomes have continued to fall, governments continue to slash budgets while corporate profits just keep going up. This is the new normal.

And it’s only going to get worse.

The rhetoric of austerity, sounded loudest from Republicans but often echoed by far too many Democrats, is a language of belt-tightening, of shared sacrifice, of somber speeches by pompous politicians who proclaim that they feel your pain while announcing budget cuts that freeze salaries, lay off workers and force more work onto those who remain. And CEOs use that same language when sorrowfully explaining why they simply can’t create jobs. Morgan Stanley’s CEO, James Gorman, beset by New Yorkers at his bank’s shareholder meeting, blamed the lousy economy when asked why he hadn’t created the jobs his company had promised the city in exchange for massive tax breaks.

Because that’s what rich corporations are able to buy with their record profits; politicians who turn around and hand them even more money, often in the form of tax breaks that hollow out city and state budgets and force even more austerity, even more social service cuts that fall on the backs of the same underpaid workers. (Remember FreshDirect, handed $129 million in tax subsidies to create $8-an-hour jobs?)

Corporate taxes, too—at least the ones corporations actually pay—are at a 40-year low, with an effective tax rate paid of 12.1 percent. They’ve fallen from about 6 percent of GDP to less than 2 percent, according to ThinkProgress’s Pat Garofalo. Once again, that’s what you can buy when you’d rather pay politicians than your workers.

Chris Hayes, in his new book Twilight of the Elites, notes that the ultra-wealthy have spawned a whole “income defense” industry dedicated to preserving their wealth and power, an industry that works tirelessly to push policies that favor the rich. He writes:

Over the last decade, the political arm of the income defense industry has been wildly successful. The tax cuts passed by Bush and extended by Obama represent a total of $81.5 billion transferred from the state into the hands of the richest 1 percent. Meanwhile, hedge fund managers and their surrogates have deployed millions of dollars to lobbyists to maintain the so-called carried interest loophole, a provision of tax law that allows fund managers to classify much of their income drawn from investing gains as “carried interest” so that it is taxed at the low capital gains rate of 15 percent, rather than the marginal income rate, which would in most cases be more than twice that. It was this wrinkle in the law that helped Mitt Romney, a man worth an estimated quarter of a billion dollars, pay an effective tax rate of just under 14 percent in 2010. In 2008, 2009, and 2010, the House of Representatives passed a bill closing the loophole, only to see it beaten back by an intense wave of lobbying in the Senate.

With Citizens United, the Supreme Court gave the ultra-rich yet another weapon in the class war, another tool by which to control our politics. MIT economist Daren Acemoglu told ThinkProgress, “We already had a very serious problem. Instead of trying to stem that tide [of money in politics], we’ve done the opposite and we’ve now opened the sluice gate and said you can use that money with no restrictions whatsoever.”

It’s bad enough when the rich use their money to buy themselves tax breaks that help them get even richer. But millionaires and billionaires from Bill Gates toBetsy DeVos to Mark Zuckerberg are also putting money into pet political ideas; on education, for example, where their money buys them outsized influence over policy. Politics has become a playground for the ultra-rich, where they get to test their pet theories on the rest of us and we’re expected to smile and thank them for their charity.

It’s not just tax breaks and subsidies that have created massive inequality—it’s also full-on war on the only means of organized power that working people ever had: unions. Private-sector union density hovers around 7 percent right now, after years of concerted attacks, and for the last couple of years public sector unions have been in the 1 percent’s crosshairs.

From the Supreme Court, where Samuel Alito wrote a majority decision attacking unions’ ability to collect money from workers they represent for political activity, to the reelection of Scott Walker in Wisconsin, public-sector unions are under pressure. Politicians keep slashing public-sector jobs, keeping unemployment high and tax revenues low, and stalling the recovery, but they’re also part of the attack on the one part of the economy that still has a strong union culture.

As unions declined, so have wages for most people. The Center for American Progress found in a study that as union membership decreases, so does the so-called middle class’s share of national income. The middle class long served as a buffer between those at the top and those at the bottom. As long as the majority of Americans were comfortable, had decent jobs and pensions, and could send their kids to school, the wealthy could stay wealthy and the poor were pretty much just ignored. And that middle class was built through decades of union agitation, not just for higher wages and healthcare benefits, but for the eight-hour day, for the weekend, for safety in the workplace and some job security.

But now the middle class has been hollowed out. Increasingly, there are the super-super-rich, and there are the rest of us.

As Hayes writes, we’re ruled by an ever-smaller group of elites who not only control all the resources, but all the power. The same people who are pushing wages downward are the ones paying for politicians’ campaigns, and they’re the same people on the boards of directors and trustees of our universities, our institutions—like JP Morgan Chase’s Jamie Dimon, who serves on the Board of Directors of the Federal Reserve Bank of New York, the National Center on Addiction and Substance Abuse, the Harvard Business School, Catalyst, as well as on the Board of Trustees of New York University School of Medicine.

Meanwhile, for the vast majority of us, the recession that supposedly ended in 2009 looks more like a depression each day, and as long as low wages and high unemployment remain the order of the day, there’s no recovery in sight.

This story originally appeared in AlterNet. Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @sarahljaffe.

May 05, 2012

Frank Thomas has written an excellent article on the transition from fossil fuels as a source of energy to renewable resources such as wind, solar and biomass that is going on in Denmark and Germany. In this article we explore how the price of gas at the pump is determined. This is an opaque subject which has been heaped in layers of obfuscation because the oil companies don't want you to know what a huge scam they are perpetrating on the American public systematically ripping them off at the gas tank. They want you to think that gas prices are set by immutable, impersonal factors like the "world oil market" over which we have no control nor ever could we. When the oil company executives went before a Congressional hearing in May 2011 as gas prices hit $4.00 a gallon, Rex Tillerson, CEO of Exxon Mobil, was asked "how are oil prices set?" He responded that they were based on the marginal cost of producing the next barrel of oil. Nothing could be further from the reality of the situation although it would be a worthy aspirational ideal, something to shoot for in a more perfect world. The Big 5 oil companies - Exxon Mobil, Shell, ConocoPhillips, BP America and Chevron - defended their huge tax breaks and subsidies despite record and eye popping profits as necessary to incentivize them to drill for more oil implying that more domestically produced oil would lessen dependency on imported foreign oil and keep the price down. This is also a total crock. Prices are set on the "world oil market" and have nothing to do with whether or not the oil is produced domestically or abroad.

Big Oil CEOs testify Thursday before the Senate Committee on Finance to defend the trillion dollars in profits they have made in the past decade thanks to you, the American consumer. Some in Congress will defend the billions of dollars in tax breaks and royalty relief taxpayers give to these same companies each year.

Public Citizen recently crunched the numbers and found that Big Oil’s profits aren’t the only eye-popping statistic – what the industry is spending its money on is equally astonishing. Big Oil lavishes more on stock buybacks, dividend payments, lobbying and marketing than on U.S. oil investments. Our research shows that since 2005, the largest five oil companies operating in the U.S. spent nearly half a trillion dollars buying back their own stock and paying dividends to shareholders. That’s more money than they spent investing in their U.S. infrastructure.

This contradicts the industry’s insistence that its billions of dollars a year in tax breaks are needed to create jobs and keep gas prices affordable. In fact, Big Oil’s investment decisions are driven by market prices of crude oil, not U.S. tax policy.

It’s time our leaders stop bowing to corporate interests and put an end to the “take the money and run” tactics of Big Oil that are nothing short of highway robbery.

While the speculation-fueled price of oil per barrel has continued to escalate, the underlying costs to produce oil haven’t. Consider this: On average, it costs $20 to produce a barrel of oil. Big Oil sells it to us for more than $100. This generates the massive cash flow that fuels oil companies’ profits and spending.

Ever wonder who pays for those ubiquitous "touchy-feely" TV ads by ExxonMobil, Chevron and the Oil and Gas Industry that you see day in and day out? You do. Without them the price of gas at the pump could be lower.

But despite the oil company executives' dissimulation, deception and mendacity, there are several factors that go into the witch's brew of oil and gas prices: namely, royalties paid to the owner of the oil before its extracted, the law of supply and demand and speculation. First, the oil as it sits in the ground, unbeknownst to most American citizens does not belong to the oil companies. It belongs to them! It is a public resource no matter how much the executives would try to persuade you that it is private property. Oil corporations pay the Federal government (meaning you the taxpayer) royalties in return for the right to drill on goverment (citizen) owned property. During most of the twentieth century, oil and gas companies generally paid between 12.5 and 16.7 percent in royalties for a lease to drill on public land or water. This is one of the lowest rates paid to a government anywhere in the world! In comparison Norway's citizen/taxpayers get a 50% return on their oil assets.

Based on results of a number of studies, the U.S. federal government receives one of the lowest government takes in the world. Collectively, the results of five studies presented in 2006 by various private sector entities show that the United States receives a lower government take from the production of oil in the Gulf of Mexico than do states - such as Colorado, Wyoming, Texas, Oklahoma, California, and Louisiana - and many foreign governments. Other government-take studies issued in 2006 and prior years similarly show that the United States has consistently ranked low in government take compared to other governments.

So American taxpayers/consumers are being ripped off by oil companies before the oil even gets out of the ground! If higher royalties were paid, this would offset the price of gas at the pump and/or reduce taxes. In any event this would benefit the American consumer/taxpayer. Moreover, royalties have been fraudulently underpaid or exempted from for years. In 1995, both houses of Congress passed and President Bill Clinton signed the Deep Water Royalty Relief Act (S.395), which granted a royalty "holiday" to oil and gas companies drilling in government-owned deep waters in the Gulf of Mexico for leases sold between 1996 and 2000. In 2005, Congress passed and President Bush signed the Energy Policy Act of 2005 (H.R. 6). which included a variety of provisions to provide royalty relief to oil and gas companies.

During the mid-nineties, whistleblowers and the Project on Government Oversight (POGO), a government watchdog group, filed suit against sixteen oil companies for failing to pay their required royalties. POGO’s suit was filed under the False Claims Act (FCA), which provides citizens the power to sue on behalf of the federal government for fraud. In these cases, the Justice Department has the right to join the case. This ultimately happened in the POGO case. From 1998 to 2001, a dozen major companies, while acknowledging no wrongdoing, paid $438 million to settle charges that they had intentionally misreported their sale prices for oil (in order to pay lower royalties).

So while the big oil companies were recording record profits, paying little if any taxes to the Federal government (causing you to pay more) and receiving subsidies, they were also committing fraud by underpaying royalties which were minimal in the first place.

Now that we've got the oil out of the ground, what is the next step? Why placing it on the world oil market which means that US oil companies will sell it anywhere in the world to the highest bidder. You might think that they would sell oil extracted in the US to US consumers first and then this would be supplemented by oil bought from abroad - the so-called foreign oil - to make up the shortfall in which case oil would be subject to the law of supply and demand within the US but such is not the case. American consumers are expected to buy gas that is subjected to the law of supply and demand among world consumers which means that as demand goes up in China and India, for example, American gas prices will rise even as demand within the US is falling. Dependency on foreign oil is a misnomer and a bugaboo. Our supposed dependence on foreign oil has nothing to do with the price of oil. What we're really dependent on is that "our" oil companies sell us "our" oil based on world oil market prices which means that they extract from us much higher prices than if they sold us "our" oil based on the domestic oil market. In other words oil produced on US real estate and sold to US consumers would end up being cheaper than oil placed on the world oil market and priced accordingly. So drilling for more oil on American soil has nothing to do with lessening our dependence on foreign oil because the pricing of oil we consume has nothing to do with how much oil is extracted from American soil.

To the extent that the law of supply and demand comes into effect which, as we shall see, is minimal, it is easily seen that this factor gives the lie to Tillerson's claim that the price of oil is based on the "marginal cost of the next barrel of oil that is produced." The law of supply and demand states that the seller will sell his product for the highest price he can get irregardless of cost. The selling price has nothing whatsoever to do with cost. It only has to do with demand. Edvard Munch probably produced "The Scream" for less than $10. Yet it sold recently at auction for $119 million. A Liz Claiborne sweater for which the worker in Thailand is paid 3 cents to make sells for $170. The law of supply and demand insures that cost has nothing to do with selling price. Insofar as the price of oil is affected by supply and demand, the same thing holds true.

The next factor to be considered is speculation. Oil being a commodity is traded on the commodities exchange. Futures contracts are bought and sold. What this means is that gas prices aren't simply set by the law of supply and demand but that speculators who are only in it purely for profit can drive up the price of oil. These are people who have no interest in ever taking delivery of the oil. They will buy a futures oil contract only to sell it (hopefully at a profit) before the oil has to be delivered. It has been estimated that 80% of the oil market is under the control of speculators. None other than Rex Tillerson, CEO of ExxonMobil, has testified that this has caused a 40% spike in gas prices. So "market forces," namely the selling of oil on the world market instead of just the domestic market and speculators have control of and can manipulate the price of gas at the pump in order to gouge the American public and increase their profits. Although the Commodities Futures Trading Commission was ordered to put position limits on speculators under the Wall Street reform act passed by Congress in 2010, they have failed to do so. This has allowed the continuation of unbridled speculation which translates into an additional $750. a year going directly from your pocket into those of the Wall Street speculators every time you fill up your vehicle!

Some believe that speculators control the market completely and supply and demand has nothing to do with it. In a blog titled "Futures Prices Determine Physical Oil Prices," JD contends that spot oil prices adjust to futures prices and not the other way around as is commonly thought. The spot oil price is simply the price of physical oil if you went out and bought some today. It is not too hard to see why the futures oil price would control the market if most of the oil market was tied up in futures contracts. If that were the case, there would simply not be enough oil on the spot market for current users, and oil consumers would be forced to buy from those who held the futures contracts in which case they would have to pay the futures contract price not the spot oil price. Supply and demand would have little to do with it since there would be relatively little supply on the current physical oil market.

All of this begs the question of why does oil and gas have to be subject to market forces and speculation at all? The answer to that question is that this maximizes profits for the oil companies and Wall Street while providing a disservice to American citizens/taxpayers. If the price of oil was not set by "the market", if control of natural resources was in the hands of or controlled by the citizens/taxpayers, we wouldn't have the ridiculous situation that supply of oil is as great as it's ever been while demand is exceedingly low, yet the price of gas at the pump has doubled compared to what it was when supply was lower and demand was greater.

In the documentary "GasHole" the nefarious activities of the oil companies are pointed out including the elimination of any technology such as the water injected carbuerator which results in a car getting 100 mpg and the electric car that was killed by the oil companies in the 1990s as recorded in the documentary "Who Killed the Electric Car?". Before the turn of the 20th century, in 1893, Rudolf Diesel developed a fuel source based on peanut energy. He said, “The use of vegetable oil for engine fuels may seem insignificant today. But such oils may become, in the course of time, as important as petroleum.” His demise is also shrouded in mystery, and his engine invention moved forward — using oil, another example of how the oil corporations bought out or forced out every alternative to the use of oil to propel vehicles. In 1904 progressive muckraker Ida Tarbell wrote "The History of Standard Oil" in which she pointed out how John D Rockefeller had used unethical business practices to force out smaller oil producers. As a result the Standard Oil monopoly was broken up into smaller companies based on states. In New Jersey it became Standard Oil of New Jersey which later became Exxon. In New York it became Mobil etc. Under the Clinton administration these two corporations were allowed to merge again into ExxonMobil.

The biggest crock is that the way to lower gas prices is to produce more domestic oil - drill, baby, drill. This is because oil prices are set on the world oil market not on any kind of domestic oil market. The way to lower gas prices is for the American people to take control of the resources they purportedly own. We can hire the oil companies to do the work for us of getting the oil out of the ground and refining it, but we should control gas prices, not the oil corporations or the "markets" namely Wall Street speculators. If We the People controlled the price of gas, it could be more rationally based on, as Rex Tillerson said, "the marginal cost of producing the next barrel of oil," instead of oil prices set by the "world oil market" and speculators.

April 24, 2012

The shareholders of Wall Street giant Citigroup are out to prove that corporate democracy isn’t an oxymoron. They’ve said no to the exorbitant $15 million pay package of Citi’s CEO Vikram Pandit, as well as to the giant pay packages of Citi’s four other top executives.

The vote, at Citigroup’s annual meeting in Dallas Tuesday, isn’t binding on Citigroup. But it’s a warning shot across the bow of every corporate boardroom in America.

Shareholders aren’t happy about executive pay.

And why should they be? CEO pay at large publicly-held corporations is now typically 300 times the pay of the average American worker. It was 40 times average worker pay in the 1960s and has steadily crept upward since then as corporations have morphed into “winner-take-all” contraptions that reward their top executives with boundless beneficence and perks while slicing the jobs, wages, and benefits of almost everyone else.

Meanwhile, too many of these same corporations have failed to deliver for their shareholders. Citigroup, for example, has had the worst stock performance among all large banks for the last decade but ranked among the highest in executive pay.

The real news here is new-found activism among institutional investors – especially the managers of pension funds and mutual funds. They’re the ones who fired the warning shot Tuesday.

Institutional investors are catching on to a truth they should have understood years ago: When executive pay goes through the roof, there’s less money left for everyone else who owns shares of the company.

For too long, most fund managers played the game passively and obediently. Some have been too cozy with top corporate management, forgetting their fiduciary duty to their own investors. How else do you explain the abject failure of fund managers to police Wall Street as it careened toward the abyss in 2008? Or to adequately oversee executives, such as the Enron criminals, who were looting their companies in the years before 2002?

The new Dodd-Frank law, much of which is being eviscerated by Wall Street’s lawyers and lobbyists, at least requires that public companies give shareholders a say on pay. As a practical matter, this gives institutional investors the chance to speak clearly and openly about the scandal of unbridled executive compensation.

Two key questions for the future: Will institutional investors keep the pressure on? And will CEOs and boards of directors get the message?

March 14, 2012

When I was a graduate student at UCSD in the midst of the anti-war movement, protesting the war in Vietnam, I went to the library and pondered what would make the world a better place, what could I do to contribute something that might make war less likely and peace time activity more likely. I concluded that more cooperation was needed. More ways to resolve conflicts big and small. For example, democratic voting systems resolve conflicts in such a way that solutions are found that are acceptable to all parties for the most part. I took it for granted that institutions that provided for more cooperation and less competition were more desirable. I thought that this was what the Enlightenment was all about. My heroes were the Enlightenment superstars: Jeremy Bentham, John Stuart Mill, Rousseau, Diderot, Voltaire, John Locke.

As I sat there and went through the stacks, I discovered another field and another set of superstars. Social choice has a long history going back to the French Enlightenment philosophers, the Marquis de Condorcet and Jean-Charles de Borda, and even further back than that. One of the 19th century superstars in this field was none other than the Rev. C. L. Dodgson otherwise known as Lewis Carroll, the author of Alice in Wonderland. These guys came up with voting systems which are essential to democracy and are essential to the whole notion of cooperation and conflict resolution. The most recent work in this field was by Kenneth Arrow who published a book Social Choice and Individual Valuesin the 1950s which attempted to generalize conflict resolution in society in both the political and economic spheres. Arrow concluded that this was impossible and came up with his famous Impossibility Theorem which was a generalization using sophisticated mathematics of the paradox of voting that was known to Condorcet hundreds of years ago. Therefore, Arrow concluded democracy was impossible and any economic system other than capitalism was impossible too. Hmmm, I thought, this is obviously a cop-out because some political and economic systems are more desirable than others and Arrow has done nothing except to throw cold water on any framework that could consider these. I took it as my self-assigned task to prove that Arrow was wrong, that social choice is possible. My work can be found on the website Social Choice and Beyond.

In “Social Choice and Individual Values,” Kenneth Arrow said , “In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions.” This paper resolves that dichotomy by developing a meta-theory from which can be derived methods for both political and economic decision making. This theory overcomes Arrow’s Impossibility Theorem in which he postulates that social choice is impossible and compensates for strategic voting, an undesirable aspect of decision making according to Gibbard and Satterthwaite. Thus the politonomics meta-theory spawns both political and economic systems which are indeed possible and which cannot be gamed. In a typical voting system the outcome of an election among several candidates results in one realized outcome – the winner of the election - which applies to all voters. In a typical economic system, a consumer may choose among a variety of possible baskets of consumer items and work programs with the result that multiple realized outcomes are possible with a unique or quasi-unique outcome for each worker/consumer. As the number of possible realized outcomes of a political-economic decision making process increases, the process becomes more economic and less political in nature and vice versa. We show that as the number of possible realized outcomes increases, voter/consumer/worker satisfaction or utility increases both individually and collectively.

I never considered, as I sat there pondering, that there would be people who would argue that what the world needed was not more cooperation but more competition, but, as I sit here today, I realize that the whole conservative right wing is in favor of just that. They want not more cooperation in either the political or economic realm but more competition believing that only winners should prevail and human progress is only possible when you give free reign to those among us who are the most talented, intelligent and ambitious. They believe that competition will result in the strongest among us winning just as Nietzsche believed that a good war hallows every cause. Their ethic is that the naturally gifted elite should prevail, and they are not concerned about what happens to the rest of us or of who is trampled in the process. This is also the philosophy of Ayn Rand as espoused in her novels Atlas Shrugged and The Fountainhead.

The debate today about increasing inequality in the world has to do with the prevalent conservative belief that only the strong should survive and be promoted and that freedom should preclude equality as a value. The rich should get more tax breaks because they are the true instigators of human progress and should be catered to at every turn. Perhaps a few crumbs will trickle down to the rest of us. This kind of thinking is counter to the Enlightenment and is fast returning us to a neo-Dark Age. No more is human progress to be measured in reduction of poverty and extension of basic services like health care to everyone. It is to be measured in terms of the great advances to human civilization like iPads, iPods and iPhones. People who are capable of coming up with these advances should be cut every break and none of the billions of dollars they make should be transferred by government to the least of these among us like the homeless, the poverty-stricken and the destitute because, well, they are the least among us, not the best among us who should be given every break.

Nevertheless, I remain in the camp of those who think that more cooperation in the political and economic spheres will do more for human progress than more competititon. I also have spent about 40 years in my spare time trying to prove that Arrow was wrong, that social choice is not impossible and that democracy in both the political and economic spheres is not only possible but desirable. This has a lot to do with voting systems, democratic institutions and constitutions but also with cooperative economic systems in which freedom is seen not as the freedom to make money at other people's expense (the losers in the competitive struggle) but the freedom to work as much or as little as one chooses and in accordance with one's preferences as much as possible. Freedom from work is for many people just as desirable a goal as the freedom to make billions of dollars, and wealthy people who don't have to work would be the first to tell you that. Economic democracy in my view is more desirable than cutthroat capitalism, and can be practiced not only at the national level, but at the enterprise level in the form of co-ops like the Mondragon Corporation.

Marx's famous definition of the "good society" was "from each according to his ability, to each according to his needs." This of course was perverted in defining communism as a society where all the wealth created by those who had a lot of talent and ability as well as a strong work ethic combined with those who had not so much in those categories would be thrown into a pot and then divided up in equal portions and handed out by the government. Such need not be the case in achieving the "good society." The "needs" part is pretty basic and could probably be accomplished with abouit 10% of the wealth that exists in the world today. Most people can provide for their own needs - no transfer necessary. There are some who cannot and to transfer a small part of the wealth of the wealthy to provide for their basic needs seems to me to be no more than humane. That still leaves the vast amount of wealth in the hands of the wealthy. In other words if you total up how much it would cost to provide for all the basic needs of everyone in the world and tote up how much wealth there exists in the world, it would take a fraction of all that wealth to provide the basic needs for everyone who cannot provide for their basic needs themselves who turn out to be mainly children, seniors and handicapped (whether physically or mentally) people.

A recent documentary by German TV station Deutsche Welle pointed out that half the world's production of food is wasted because super markets only want perfect vegetables and ones with slight blemishes are thrown out even though they are perfectly edible. Shelves need to be fully stocked with bread right up till closing hours even though any bread left over at the end of day will be thrown out as "day old." All the food that is thrown out by advanced nations is enough to feed all the world's hungry three times over although no governments or other institutions, much less the supermarkets themselves, seem to be interested in organizing that effort. This is what I mean by the fact that the basic needs of all the world's people could be satisfied without subtracting much if anything from the world's wealthy although a lot of them would admit they do not need incomes of millions of dollars a day like the Fortune 400 billionaires have.

Another documentary noted that Finnish school children have the highest test scores in the world despite the fact that they have one of the world's shortest school days with 15 minutes intermissions between classes during which time they are encouraged to go outdoors and play. All grades have large amounts of music, art and self-defined projects. They don't teach to the test. They are concerned with the development of each student as an overall human being not just as some super competitive cog in a nationally competitive machine. The Chinese on the other hand have the opposite approach demanding that children learn by rote methods and extra hours in school and at study. The Finnish schools are all public and everyone is accepted into every class. There are no advanced classes or tracking of students into lesser classes if they are not among the elite intellectually. Everyone is thrown in together; yet they have the best outcomes of any country in the world on standardized international tests. Egalitariansim seems to gain the best results.

An egalitarian ethic in which the concern is for the development of the whole human being rather than a promotion of just those who have superior abilities in accordance with a competitive ethic seems to me to be the most humanitarian way to treat both children and adults. The 1948 Universal Declaration of Human Rights already provides for most of the "from each according to their abilities, to each according to their needs" ethic. It calls for free health care which most advanced socierties, with the exception of the United States, already provide. It calls for free education and other public institutions and covers most basic human needs including food and shelter.

Article 25.

(1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

Article 26.

(1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.

(3) Parents have a prior right to choose the kind of education that shall be given to their children.

All the basic needs of everyone on the planet could be provided for without subtracting much of the wealth of the rich since most people can provide for at least their basic needs without any transfer of wealth whatsover being necessary. Interestingly, the US among other nations does provide food security for the poor through its food stamps program. And of course seniors are provided for through Medicare, Medicaid and Social Security, programs which conservative free marketers are anxious to change or eliminate.

I am with the Enlightenment thinkers especially the English utilitarians like Jeremy Bentham and John Stuart Mill who thought about the happiness of society as a whole and concluded that everyone counted, not only the ones with exceptional talent, ability and other admirable qualities. A society should be judged by how it treats "the least of these my brethren" which is the core and essence of Jesus' teachings but, sad to say, not the core and essence of Christianity as it exists in the world today. Perhaps we should start thinking about an alternative constitution for the US which has the world's oldest constitution (236 years old!) while being the world's youngest advanced nation. Other societies including most European societies while being older than the US have newer constitutions. As far-sighted as the Founding Fathers were, a new and updated constitution incorporating not only political but also economic rights along the lines of the UN Declaration of Human Rights would do much to right the wrongs and shortcomings of present day America and the world.